So Why The Rally.
Just as yesterday Europe set the tone of the day downward, it set the tone of the day upward. A couple of weeks ago in our rant we mentioned that decisions by the European Central Bank to bail out country specific banks may be unconstitutional and grounds for the end of the Euro. The highest court in the land (Germany) ruled that actions by the ECB were constitutional thus breathing life into the comatose Euro. More life sustaining measures took place when the SNB Swiss National Bank pegged the Euro Franc relationship at 1.20. What does all of that mean to you?
The market opened up. It managed to stay there on fairly light volume as people were awaiting for the Feds Beige Book (If anyone wants a bound copy, let me know.) Once it was released after the close of the market, we knew nothing more. We have a stagnant moribund economy. So everyone is waiting and waiting for words of wisdom from President Obama. We think the world will be a bit disappointed.
He will say some good stuff, don't get me wrong. He will probably take a few pages from Romney, a few pages from Paul Ryan, and even a page or two from Newt. We will hear things like an extension of the payroll tax cuts, maybe even a largest payroll tax cut, special tax credits (could it be nat gases day in the sun?), some kind of new unemployment benefit scheme, new spending on infrastructure (thought we did that once?), foreign tax income repatriation (PADI likes that one because we get to bring home income we have earned all over the world without double taxation.), to name a few. But like we said last night, don't count on any support from the republicans. Someone asked me if the republicans won't cut President Obama any slack because of race. I said yes, the next Presidential race.
This rally is pinned on hopes and personally I feel there is a short squeeze happening. That happens when fund managers trying to tighten up their short position losses will buy their way out of a stock during a brief rally.
Because of the pending disappointment, we bought some 144 dollar SPY Put options dated September 17, 2011. As you know that is a bearish bet. When the correction comes in the next two days, we will be looking at a 25-35% gain.
Salve Lucrum
