October 2006 Archives

• According to various news reports North Korea has agreed to engage in six-party talks. Personally, I think that is great. I much prefer dialog to the more forceful approach. That said, I expected oil to be down with a dramatic lessening of geopolitical tensions. According to Bloomberg.com WTI Cushing Spot price rose $0.37 to $58.73 for a gain of 0.63 percent.

• Many pundits are talking about the slowing economy and how vehicle manufacturing last quarter help to prop up the GDP data. Even with a slowing economy and lessening geopolitical tensions, commodities appear to remain reasonably strong.

• I listened yesterday to Blue Nile's (NILE) conference call. I wanted to get an impression as to whether the jewelry sales were strengthening or weakening. The conference call did not shed much light on that question. However, I got the strong impression that traditional brick and mortar jewelry stores are in trouble. With regard to pricing and likely service, Blue Nile is able to vastly undercut the competition. As their brand and reputation continue to grow, future customers will be even more comfortable in making online jewelry purchases. If I were a traditional brick and mortar jewelry company, I would be looking to capitalize on my existing reputation and market strength by starting an online presence as well. Given that I like Blue Nile's business model, am I a buyer? No, because I am more worried about the economy as a whole, especially discretionary income. If the economy does weaken, I expect all jewelry retail outlets to suffer. But longer term, I expect Blue Nile to continue to capture market share. I recommend reading SeekingAlpha's transcript of the Blue Nile conference call.

• Doug Kass, general partner of Seabreeze Partners Management, Inc. and commentator for The Edge Column on Street Insight (subscription required—part of TheStreet.com family), wrote an excellent six-part article on why he is bearish. Because his information is copyrighted, I cannot provide you with a reprint. But he might articulate many of his points on Kudlow & Company on Friday evening. Also, the TheStreet.com often reprints substantive articles from Street Insight a few days after they are initially created. So you might want to keep your eyes peeled on the free site during the rest of the week.

• Nothing much about this market has excited me. The next big event appears to be the election. I am not sure that it will be a substantive event. But many participants seem to think it will be.

It's Only Just Begun (pdf) is an excellent interview with David Levy, Chair of Mount Kisco's Jerome Levy Forecasting Center LLC. He provides a very strong bearish case for housing. He discusses what led the current housing crisis and provides his thoughts as to how the housing and the general economy will play out. While I might not be as bearish as Levy, I do think this article is worthwhile reading.

Subscribers to FleckensteinCapital.com learn of these interviews quickly. The site has an excellent question and answer section where subscribers often highlight worthwhile articles. Both yesterday's and today's article came from Fleck's site. I read both interviews and thought others would benefit from reading them as well. Thus, I posted the links.

I highly recommend reading Kim Schoenholtz's interview from 7 September 2006 of Robert Rubin.

• Commodity prices have remained reasaonably firm. Crude is back above $60 per barrel. Natural gas is about $7.80 mmBtu (or about $8.20 GJ), Gold is about $595 per ounce and silver has been bouncing around $11.50 to $12.00 per ounce. Commodities have not crumbled as many expected.

• Rates have paused, for now. Wall Street Journal had an excellent interview with bond guru Bill Gross of Pimco. Gross expects the short end to start coming down within three months. That would certainly be a change.

• Housing still looks horrible. I think the worst is yet to come.

• As a general statement, technology has been weak so far. There have been very few positive standouts.

• Volatility is amazingly low. I find it interesting to read Adam Warner's daily options report because Adam prefers to sell options and collect the decay. But with the volatility so low, he is having to look for opportunities to buy options. If you do not already read his blog, you should do so. I find his blog extremely helpful in better understanding options.

• I have done very little trading. I am just sitting back and watching. Although I am cautious, I remain net long on the market with some short positions.

Oil prices are down today on traders' beliefs that the OPEC cuts will not stick. I agree, however, with Gary Ross, from PIRA Energy Group, who was on CNBC this morning explaining that it takes a couple months before the effects of cuts take place. As winter approaches, we will enter into the peak demand season just as the cuts begin to take effect. That said, for now the traders are correct as WTI Cushing Spot price, according to Bloomberg.com has dropped $1.10 to $57.40.