FRI. AUG. 29 THOUGHTS

At 4:55PM on Wednesday afternoon, a seemingly innocuous headline appeared on the tape: “MBIA to Reinsure $184 Billion Portfolio of Investment Grade U.S. Public Finance Credits Insured by Financial Guaranty Insurance Company.” If you read through the story, you’ll find that FGIC insures a number of municipal bonds – specifically general obligation water and sewer, tax-backed, and transportation sector AND does not contain any credit default swap, below investment grade debt, or anything else that would seem untoward. What they want MBIA (MBI) to do is provide insurance for them on these very safe bonds; MBI in return will receive $741 million in unearned premiums. Now, think about this. If everything goes fine, MBI gets $741 million. If everything does not go OK, it means the American economy is in perilous trouble because things like debt to pay for water and sewer systems cannot get paid back. So, either MBI gets cash or they don’t get paid because the entire financial system failed. Good bet. This is why MBI rallied sharply yesterday. Just as relevantly, it shows a sudden surge of faith in the reinsurance sector and calms the entire market re the possibility of big reinsurers failing. In turn, this confidence builds in the Fannie Mae’s (FNM) of the world which spills over to the rest of the financials which spills over to the financial sector which spills over to the equities markets. Mind you, volume was extremely light yesterday, but it was a significant development. For day traders, it shows just how news-centric our profession has come and that we must focus on the here and now because the ‘here and now’ is in constant flux- providing us with opportunities on an intra-day basis that continue to be rather remarkable.

Markets overseas were higher on the heels of Wall Street’s gains yesterday. However, markets state-side will likely be down a bit ahead on DELL’s negative report and amid nervousness over the track of Gustav.

Reiterating-If the whole story is not there -
If something is good, assume either a short thru unchanged or an A-B-A2 based on direction of the market unless specifiedIf something is bad, assume either a buy thru unchanged or an A-B-A2 based on direction of the market unless specified

Good-

FNM/FRE- both huge run-ups yesterday continued. If they trade higher initially and look to weaken, short FNM in particular thru unch as it had a very high close yesterday due to an imbalance. Will almost without a doubt be the trade of the day if it sets up correctly..particularly pre-open.

PETM – solid earnings

ABK/MBI- very strong yesterday; if they open down, buy thru unch

JRJC- good earnings

Bad-

DELL- terrible earnings

SIGM- warned on earnings guidance

MRVL- warned on revenue guidance

FRPT- restating earnings

RIMM- trading lower amidst reports as to exactly when its new Blackberry will be released

No earnings of consequence today.

Good luck today.

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