EOT Position Update – November 26, 2008

November 26, 2008

Market Snapshot

Important Note:  Watch for a new Trade Alert early next week.

The Dow just closed at 8726.62.  The choppy market continues.  It looks like a new low of just under 7,500 was established late last week.  Now we’ve seen 4 straight days of the market moving higher.  The Dow’s up more than 16%.  Let’s hope it holds.

The big news this week…

Toyota’s (TM) rating was cut from triple A to double A on weakening car sales.  It’s interesting this move didn’t come much earlier… like last month when some carmakers were seeing sales declines of 30% or more!

The Fed came out with a new stimulus plan.  Another $800 billion was thrown at the credit markets.  $200 billion was directed toward bonds backed by student loans, credit cards and autos.

Citigroup (C) received a needed guarantee and cash infusion from the government. The Fed’s backing $306 billion in loans and handing over another $20 billion in cash. Didn’t they just receive $25 billion a few weeks back?

Oil prices continue to move lower… This will help the economy improve in the next few months.

Now for the trade updates.

Position Updates

Just a quick note:  Remember, we won’t update every open position every week.  I try to focus on the positions that have some significant news or price movement.

 SU January 2009 $17.50 PUTS (SXHMW)
We got whipsawed on this trade.  The stock plummeted a few days after establishing our position.  We crossed both support levels and peak profit was 95%.  Since then the stock jumped in value.  Congratulations to everyone on a quick profit!

  JCP January 2009 $30 PUTS (JCPMF)
JCP continued its freefall last week with the stock touching $14.  The option’s showing a peak gain of 676%.

  GT January 2009 $15 PUTS (GTMC)
Last week the stock touched $4.  The option’s peak gain is 424%.  What an amazing run!

Parting Shots…

The biggest fear in the economy.

Over the last few months we’ve heard a flurry of news about government intervention. Everything from the $700 billion TARP program to the $135 billion bailout of AIG… and now the $800 billion credit markets infusion.

The latest news includes more cash being pumped into ailing banks (like Citigroup).  Can the auto industry be far behind?

The fear factor is in full swing.

Every industry that hits a bump in the road now looks to the US government for a cash handout.  The Fed and Treasury keep printing money and injecting it into the economy.

It’s supposed to be helping the credit freeze and the banking industry… I’m sure it is. But where’s all this money coming from?

My big fear is the government’s just printing more money to fund these capital injections into the economy.  It seems they’re running the printing press 24-7.

Here’s the problem.

All of this new money dilutes the value of the dollars already in circulation.  Right now, it’s not a problem.  The world is so hungry for US dollars the massive flow of cash isn’t hurting our buying power.

The problem will come down the road.  When the world’s not so eager to hold US Dollars we’re going to see buying power crumble.  Then the ugly problem of inflation will rear its head.  And that’s something to be very afraid of…

Category: EOT Update