Stock market trend: Up
It is always nice when the market geniuses catch up to one of your trades. Case in point is the action last week in GE call options and the follow-up article in this week's Barron's ("A Bullish Sign for GE). Back in late February just as the market was approaching its March low, I put indicated in the newsletter that I was stocking up on GE 2011 leaps.
My reasoning at the time was that economic recovery was likely, that GE was grossly undervalued because of the drag of GE Capital on its balance sheet, and that when recovery came, GE would like enjoy a very strong move. In addition, the beauty of buying GE as a market proxy is that, unlike buying SPY (the ETF for the S&P 500), GE also offers some hedging against a falling dollar because of its international operations. Of course, the logic of buying GE leaps rather than GE shares was that I could limit my losses AND control a lot more shares with a lot less money.
What amused me about the Barron's story is that the reporter Steven Sears remarks that "the bullish options angle...is new" and that "normally, the industrial conglomerate's options were used to hedge against a decline in the stock." Well, new to the newbies maybe, but not to this column's readers.
Switching gears, a few brief words on the upcoming G-20 summit in Pittsburgh may be useful. The big question is what will Barack Obama says to China's President Hu Jintao. Maybe something like: "How the Hankook are you?" I'm referring of course to the tire tariff blowup last week and what this might mean for trade reform with China.
Will we get Mr. Obama in the conciliatory kowtow position begging for Mr. Hu to finance our budget deficit? Or will Barack, in the vernacular of the street and now primetime television, "grow a pair" and challenge Mr. Hu to stop manipulating the Chinese currency and to end China's massive mercantilist export subsidies. What's at stake is the viability of any long term recovery. Without a rebirth of cities like Pittsburgh and Detroit and Akron in the manufacturing arena, Obama will be a one-term president providing over a slow-growing former superpower eating Chinese dust (and breathing its polluted air).
Last take: Let's get the hell out of Afghanistan. (More to follow on this.)
Navarro on TheStreet.com