The major averages climbed steadily this week to near their highs for the year as oil and commodity prices dropped and confidence rose that the
will hold interest rates steady. Once again,
bloggers were all over the market action, and we'd like to share the best of their commentary this week with readers of the
. These posts best capture the intent of these blogs, which is to provide intelligent discussion on the issues each writer sees as most pressing that day.
Let's take a look at
on natural gas,
on the video revolution,
on cheap, out-of-the-money options, and
on the economy's sweet spot.
Click here for information on
, where you can see all the blogs -- and reader's comments -- in real time.
Cramer's Blog: Lower Natural Gas Will Heat Up Consumers
Originally published on 9/14/2006 at 12:50 a.m.
Natural gas is in free fall, with no sign of a bottom. What does it mean?
I believe that the way to think about this is to look at it year over year. Last year, the natural gas bill spiked, and the owners of the 63% of homes heated by natural gas went nuts and cut back their spending.
Now they have the opposite situation, and it could be a windfall.
Of course, you won't hear about this. You are going to hear only about how the glut is killing the drillers, which it is. They are toxic as I have been saying, and this $125 price on the
Oil Service HOLDRs
can't stand when natural gas goes to $4, which it feels like it will. Remember, it used to trade at $2, and we have been discovering a lot of natural gas. We still are in short supply over the long term, as we are with every resource, but getting someone to care about the long term is impossible.
I just want to remind you about how much people fretted last year over what would happen to the consumer with high nat gas prices. Now they should be thinking the opposite. They should be buying even more shares of
Hasn't happened yet. It will.
At the time of publication, Cramer was long Sears Holdings.
Rev Shark's Blog: When Bears Cry Wolf
Originally published on 9/11/2006 at 8:54 a.m.
"Cynicism is not realistic and tough. It's unrealistic and kind of cowardly because it means you don't have to try."
-- Peggy Noonan
It is very easy to be negative about the current market, but just because it's easy doesn't mean it's wrong. One interesting phenomenon about the market is that no matter how good or bad the action is, there are always bears with compelling and logical arguments about why we are doomed. During the strongest upside momentum or the ugliest downtrends, they are always there with their tales of woe, assuring us that the worst is yet to come.
The problem is that there are times when conditions are not that positive and when we really do need to be cautious. Unfortunately, we become so used to disregarding the doom-and-gloomers who haven't trusted the market in years that we really don't have any good objective negative viewpoints to consider when conditions do look poor.
So often the bearish viewpoint feels like the fable of the boy that cried wolf so often that when there really was danger, no one paid any attention. The question for us to consider now is whether this time there really is something to worry about.
I have a tendency to be bullish, but I feel more concerned than usual about the state of the market. The technical conditions, the lack of news catalysts, seasonality, economic factors and a number of less concrete issues are nagging at me. I'm telling myself to not be sucked into the perma-bear mentality that can always find something to worry about, but on the other hand there do seem to be some legitimate concerns out there right now.
However, rather than get caught up in the macro arguments about the market, I'm going to stay focused on the chart action. Ultimately it is the price action that will tell us whether we should be positive or negative about the market. Right now the charts look vulnerable, and that is probably feeding my negativity, but that can change, and if they do, we need to change our thinking as well.
We have a rather somber start this morning as we contemplate the events of five years ago. Few of us will ever forget what we were doing when the news hit that a plane had struck the World Trade Center. That is probably helping to hold the market in check as we kick off the week, but overseas markets were mostly lower as oil continues its sharp decline and gold breaks the $600 level.
Cody Willard's Blog: Controlling Your Own Content
Originally published on 9/14/2006 at 1:22 p.m.
This morning, I hosted the founders of Slingbox at my office to get a bead on what they're up to. Slingbox is a box that typically plugs into your set-top box or
. It allows you to control your home TV from any Windows-based PC or PocketPC using a software application.
One of the things I love about this app is that the software shows a fully functional picture of your cable or TiVo remote control, and it does pretty much everything the actual physical remote does. So this product allows you to watch your home cable system (or, in my case, my office) from your PC or phone as long as it's connected to the Internet. I sometimes watch "Kudlow & Company" or "Mad Money" on my
Q from a car when I'm on the road, even if it's not being broadcast at the time, because I can just pull it from my DVR.
and others will likely have to start putting this technology into their set-top boxes. This is underscored by the fact that the consumer uptake of Slingbox technology since its introduction last summer has been a little bit faster than TiVo's original uptake over the same time period.
and others enable downloading of video content, Slingbox and perhaps Apple itself will probably enable this so-called "place shifting" technology for any content on the iTV, too.
My hardware-guru assistant Jonathan and I got to look over the new and upgraded products that Slingbox will be shipping in the next few weeks. The company, along with its investor
, is diligently working to improve the picture quality of the streamed video.
Speaking of Texas Instruments, it's probably the only way to play on this trend. Though the chipsets that it is developing for this technology is but a minute fraction of its overall business, it is a growth business. And the fact is that Texas Instruments is taking market share in just about every single one of its markets, especially in video, including in HD with its DLP technology.
also has a Slingbox-like device, but it's hardly marketed and I don't think Sony's focused much on building it.
One parting shot on the
Video Revolution -- anybody else notice that Cramer videos are among the most viewed stories on
right now? Makes one say, "hmmm," no?
At the time of publication, the firm in which Willard is a partner was net long Microsoft and Apple, although positions can change at any time and without notice.
Steven Smith's Blog: Underground Options
Originally published on 9/13/2006 at 9:29 a.m.
Cheap, out-of-the-money options are sometimes referred to as lottery tickets because of the long odds, but potential high payoff, that comes with their purchase. Therefore, an anecdote from this morning's subway ride seems like an appropriate analogy for discussing some option concepts.
It involves a man who, through some prior and, I'm sure, totally legitimate transaction, was in possession of several hundred "scratch and win" lottery tickets. The face value of these was pegged at $1 each, and the payoffs ranged from a maximum loss of the initial cost up to a $10,000 jackpot.
The two main differences between these lottery tickets and a call option is that the former has the probability of being a winner printed on the back and there's no time limit. The latter does offer some hint at the odds through the implied volatility or price of the options, and they come with a definitive expiration day.
Apparently, this enterprising man fancied himself a market-maker and thought that the state of New York had awarded too high an implied volatility, making the tickets too expensive based on the odds of winning. He didn't want to waste time scratching his tickets; instead he was willing to sell them. He priced them at seven tickets for $5, around 70 cents each; or 20 tickets for $10, 50 cents each, or a full 50% discount to face value.
As imperfect as it may be, this example illustrates the fact that when someone owns a huge inventory of something, especially at a low cost basis, it can cause a sharp decline in implied volatility levels. That's reflected in the option's price if it is placed on the market for sale.
A somewhat recent example of this occurred when
to buy hundreds of millions of dollars of underwater employee options. This created a huge overhang of options held by the bank, which then needed to sell or sell stock to recoup its cost. That was one of the factors contributing to the decline in volatility in Microsoft's shares and the IV of its options.
From the buyer's side, where most of us operate, it was interesting to see on the subway that people who normally don't play the lottery, me included, were suddenly willing to fork over $5 or $10 for a shot at winning.
Though the percentage return on a winner certainly increased, the odds of making money had not changed at all. However, the perception was that these tickets were cheap and represented a "bargain."
There is a price point at which the lottery tickets do become good value. After all, there will be a few winning tickets in each hundred, and stocks have their historical volatility and tendency to revert to the mean, which allows one to make a case that an options IV is "relatively" cheap or expensive.
But it's important to keep in mind that simply because something is priced lower than it had been recently, it may not represent a good value.
And apparently the lottery market-maker had his own expiration date. As we reached the final stop at South Ferry, he offered the tickets at $10 for $1.
He quickly sold out the remaining tickets.
Tony Crescenzi's Blog: Toss the Retail Sales Weakness
Originally published on 9/14/2006 at 9:33 a.m.
Retail sales were weaker than expected in August, but the data don't seem to upset the view that consumer spending has held up reasonably well in the face of numerous headwinds.
Consumers are getting a boost from the recent decline in energy costs, falling market interest rates and rising stock prices. Therefore, sentiment about the near-term outlook for consumer spending is likely to be fairly sanguine, particularly for September, after upbeat remarks from
on the recent sales trend.
On a year-over-year basis, retail sales remain considerably above their long-term average, with gains in excess of 7.0%, about 2 percentage points higher than normal.
These factors will cause many to focus on the prospect for a pickup in retail sales in September and on the lofty year-over-year gains. Still, many others will look for the headwinds to catch up to consumers, resulting in a weaker sales trend in future months.
As reported, overall retail sales increased 0.2% in August, which was 0.4% better than expected. The more important metric, however, was the 0.2% gain in retail sales excluding automobiles. That figure was 0.1% lower than expected. Figures for previous months were revised downward by 0.5%, making the ex-auto figure 0.6% lower than expected.
Importantly, sales of building materials saw their first back-to-back gains since last October and November, marking stabilization in the recently deteriorating housing-related sales. Nevertheless, sales stayed on a relatively slow path, rising just 0.1% following a gain of 0.3% in July, and these sales followed cumulative declines of 4.5% in the three previous months.
Also interesting was the 0.7% gain reported in restaurant sales, the best since March. Probably by no coincidence, this pattern fits with the trend in gasoline sales.
David Morrow is editor-in-chief of TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He appreciates your feedback;
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