September 10, 2003

Whispers of a Nameless Wonder

Have just returned from hearing a speech by Hernando de Soto. De Soto was here in Paris today speaking to a small group of French academics about the important of title and private property in creating prosperity. He spoke in French, though. And my French is…err…un catastrophe. I’ll give you the full rundown on what I think was said tomorrow. For now, be thinking tonight of whether the idea of private property is a Western Liberal construct (a distinctive feature of a certain geographic place, Europe, at a certain time in history) OR…an essential element to ANY culture that hopes to raise standards of living. Discuss amongst yourselves. I’ll get back to it tomorrow. By the way, De Soto’s book is called “The Mystery of Capital.” I’ve linked to it on the right of the home page at Gag Reflex or Appetite? The market now resembles the fat man from the famous Monty Python skit. It is fully priced for good economic news--especially when there’s so much bad geopolitical news. But it is salivating at the prospect of a third quarter with 5%-6% growth. That’s Chinese-like growth, and you could forgive the market for rallying on the rumor and selling on the news. It’s just too good of a whisper number to pass up. reports that: “Though it is early to be providing reliable estimates given the lack of information on even July inventories or trade, personal spending alone seems to guarantee a heady growth rate as the continued upturn in business investment and a likely turn higher in late quarter inventories will add on. Inventory rebuilding and the lift from business investment should improve labor market conditions markedly in Q4. The upturn in core inflation will wait for a few quarters of strong growth as underlying demand provides increased pricing power." It will be interesting to see if this whisper number was part of the rally we just saw, or will power this rally even higher. Today, however, the selling is broad based, taking down techs and golds alike. You could see this coming. And I tried to trade it in the most responsible way you can in a market so overvalued: by attacking the most speculative stocks with puts. I counted semi conductors as the most speculative stocks, simply because they almost always lead bullish rallies and drag the markets with them…until they get too far ahead and give back 5-6% in one day, like the SOX is doing. And then there’s the Semiconductor Holder Index (SMH) which I’ve had in my sights for the better part of a month. It pains me to see the index doing what it’s doing today--after our puts were stopped out. But there IS a silver lining here for traders. This index moves at extremes. It’s the right index to be bullish or bearish on at turning points. With options, you’ve got leverage. The critical question is timing. And if you control your risk, you can afford to be wrong, provided you’re right at least one big time. One big time…you get the feeling there are going to be lots of swings this fall that give you the opportunity to be right one big time. In gold. In semis. In small caps. In Treasury notes. In housing. In retail. I’ll keep you posted as I come across new ideas. An Idea Whose Time Has Come...


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