Writing of Index Options May 16th 2008

US Market wants to go up. Traders want to write premiums yet VIX is dead as a door knob. SELL IN MAY AND GO AWAY!!!!!!!!!!

Our North American rail stock universe is doing FABULOUS. Canada's XEG.TO, CDN Oil stock ETF is doing records weekly. What gives? 2 themes...

THE US HAS THE WORLD"S MOST EFFICIENT FREIGHT MOVING INFRASTRUCTURE IN THE WORLD
Keep raising oil prices and the US will eat the other economies for lunch!!!


CHINA IS GOING FROM EXPORTER OF DEFLATION TO CONTROLLER OF ITS IMPORTED INFLATION
I read some very compelling arguments from http://www.dailyreckoning.com
contributor Christopher Hancock who believes that the Chinese economy managers are going from boom growth to harsh realities of adolescent growth spurts and a recent 49% correction on the Shanghai stock exchange is not conducive to steady yet fast pace growth. The Chinese would prefer stability and a low US is not the driver of the Wal-Mart economy anymore and INSTEAD it is a net importer of inflation into China. WOW~! How quickly things change in 5 years!!!!
Assuming this is true that would imply that the Chinese want a strong dollar relative to their imports of raw materials and if they can't get that they will be willing to let the HUAN rise vs. the USD... Too bad the HUAN is NOT a convertible currency... I could simply convert my USDs to HUANs and the rest would be useless but I can't so here are my bets based on the potential scenario
1) IBM, Coke and all the large BRAND names franchise who had stellar foreign earnings reported in Q1 2008 might not be so hot later this year.
2) I would venture DJIA will under perform S&P 500 because of those foreign earnings numbers
3) I don't think NAZ will be so hot against either DJIA or S&P 500 unless the EURO really depreciates 25% against the USD... i.e.120-130 range and equity managers pile into strong US for the carry, not hodling my breath on that one
4) China is going to start draining liquidity in its own market to prevent former exporters from dumping and isntead favor a more gradual transition to internal consumption. You can expect another 20MM NEW chinese millionaires in the next year who will cater exclusively to Internal consumption while you will see a few company struggle with exports. If you have any either on long/short combo which values that net scenario, please drop me a line!
5)Rail is still the cheapest way to get stuff around. so won it and recommend it
6) North American Companies are going to go crazy trying to export all the raw commodities they can THIS year and probably we are going to witness MANY commodities cratering by Q3... As a whole I cannot imagine the FOOD basket index being HIGHER at year end that they were in APRIL. Fertiliser stocks should be shorted NOW because backwardation charts will be very steep in September...
7) Bernanke will be happy because he will have cogent arguments as PPI will be tamer than future rabid CPI numbers. Ben is still worried about banks ( hey that IS his paycheck!)and he is going to have to contend with critics and hacks publishing books on the Bearn Stearns story. Nothing better for the Hampton crowd to feed on their own that to dish out the latest gossip. Look for books to come out with insiders explaning how Ben got hoodwinked into this
8) You can easily price 75bps increase in Fed fund rates by Q1 2009... no big science.

I am just checking the numbers but trying to explain why I am happy to sell into strenght.

REMEMBER to read this stuff in A YEAR!!!!!!! this is HALF the FUN!!!!!


RECOMMENDATION
Long USD / SHORT EURO
LONG S&P 500 / SHORT DJIA
LONG S&P 500 / SHORT NAZ

Cheers

DCW