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Author: Mike Celeste Editor: Tony Ponzo March Circulation: 6815

Stat Sheet Week Ending March 15th 2008

ChangesWeeklyYear to Date
Indexes Points Percent PointsPercent
Dow+58.0+0.5%-1.0-9.9%
S&P-5.0-0.4%-180.0-12.3%
NAS0.00.0%-440.0-16.6%

Highlight of this past week: Two splitters were closed out early with nice profits.

In this Issue---
SplitMaster Basic System---
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After we had the really huge up day on Tuesday, we decided that 2 birds in the hand were better than 4 in the bush, so we sold RBN and STLD a bit early. Yep, took those profits and ran with them. We didn't feel that the markets could improve on that 417 point Dow gain---and they didn't. One little problem--by selling on the 13th (was that a warning or not?) at the open, we missed a good comeback, but we didn't want to lose those profits and we are glad we did it. The markets did go back down as you know.

 Big Dipper System---
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We have added a number of new splitters to the list and will see if any can manage to drop down and hit the Big Dipper target buy price. Even with the Dow down over 300 at one point on Friday, we didn't come close--showing the strength of most splitters (most, not all, we point out--being fair about this.)

 Options---
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We think it is about time to take a look at an additional approach to splitters as far as options go. We keep talking about the volatility and that has affected the options, too--and in a big way. We haven't put out many option buy signals lately because of this. The problem with buying CALLs on the splitters is the premiums are so high that often, even if the stock has gone up to make a profit, the time premium in the CALLs dwindle over the time we hold the play giving a loss or a break even at best in the option. However, this volatility or high time premium can be used in our favor. Instead of buying the CALLs on the splitters as they hit buy date for the stock, we think it would be very beneficial to buy the stock and write the CALL to cover the stock. The time value on these calls are more than enough to satisfy us. Team members, if this interests you and you have questions, let us know.

 Momentum Plays---
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We keep thinking every week that maybe the markets will settle in a little and quit swinging so wildly. Well, anyone following the market this week saw that not only did the markets NOT calm down, they got even more wild. It's hard they could get more wild but they did. So we find that the difficulty in getting in and out of the SPX options at a fair price continue. That coupled with the fact that earnings season is winding down for the quarter, made it hard to even find a play to go in. But, we did manage one play for the week and it was a win. That makes two wins out of two play for the month. Even though we were not getting a lot of action, we are at least back on a winning streak.

By the second week in April the earnings plays will be back in full swing but, we need to get this market to settle down as well. When that happens is anyone's guess at this point. As long as the barage of negative news and surprise melt down stories, such as with Bear Sterns, keeps making the headlines, the volitility is going to continue.

 The Economy, The Markets & Commentary---
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We think we are justified in hammering away again at the apparent lack of credibility that is out there in the financial world. Just last week I said in the newsletter that it appeared we weren't being given the whole story. This week I think we saw a huge example of that. The CEO of Bear Stearns came on CNBC and said they were not having any credit problems and in fact they had billions of dollars set aside. Two days later the story was completely different. Here is the AP headline on Yahoo Finance today---

"The federal government and JPMorgan Chase & Co. teamed up on a bailout of Bear Stearns Cos. on Friday, a last-ditch move to save the investment bank, which acknowledged its dire financial straits after a week of firm denials."

So there you have it, and I don't accept any excuses for saying that they had no credit problem. Some of the "experts" on CNBC tried to say that there were 3rd party participants and that could change the situation from one day to the next. If that were the truth, then the CEO should have said that the situation could change in 1 day. To omit that, and to say that they had no credit problem, is, to me, disgraceful. The stock dropped 46% on Friday. Those investors that either held onto their Bear stock, or the ones that bought Bear stock based on those official comments must be sick in bed by now. We can just imagine the lawsuits that are going to be hitting the courts. I hope that none of our readers were lured into that stock. It is hard enough to make profits when we do have all the true facts. The Dow dropped about 300 points on the bailout news and then fought all day trying to come back. It managed to get to a loss of "only" 195 points, but it rallied, fell back to over 300, rallied and fell back again. That tells us that there is a very large disagreement over what the true position is.

On top of this credibility problem and its affect on the market, we still have to be looking at the rest of the economy. That blasted liquid we all need, gasoline, continues to blow us right off the road. Here we have the oil reports showing a decline in use of gasoline, a rise in the inventories of oil to very high levels, and still gas jumps daily, it seems. I buy my gas at Sam's Club as that is the cheapest in our area. Just a few weeks ago it was 2.91/gal. Last night it was 3.45/gal. Today I went at 10 am to get a few gallons and the attendant told me that at 9 am this morning it jumped another 8 cents to 3.53/gal. The markets are all raising prices because of fuel costs to deliver the goods. That's on top of the incredible rise in commodity prices. OK, we wanted an alternative fuel, so they press ethanol as the saving grace. We've pointed out that ethanol costs more than gas (at least it did) as it uses more energy to make it. That also means that corn is being diverted to fuel instead of food, so corn makes a big jump. Our LA Times is doing a story on the big jump in bread, pizza, wheat and flour prices. (The reporter contacted me for our comments on these.)

Gold hit $1,000 an ounce and silver made new highs also. These are defensive items. A week ago we were invited to a gathering at our Iranian neighbors. They came here when the Shah was exiled, and they are really nice people. Anyway, they asked me where I thought gold prices could go in a year. The price was $900+ at the time, so I said that I was not a solid follower of gold, but I could see it definitely hitting the $1,000 mark soon, and maybe $1,200 in a year. Well, my neighbors are close followers of gold and have been for their family history. For what it is worth, they are looking for gold to hit $2,000 in a year. We'll just tuck that in the back of our mind and see what happens. I never thought we would see $110/barrel for oil this year, so that shows how wrong I can be. Forget the fact that there is no valid reason for it-- it hit that price, and we probably are not through with a price increase (oh, I hope that doesn't happen). Of course there is the other side of rising oil prices. Is there a classic bubble forming and is it ready to burst? Time will tell. These are interesting times for sure.

There is much talk about the value of the dollar and how low it is in relation to other major currencies. I don't worry too much about that as it has happened many times before. There is a definite ebb and flow to these things. That ol' pendulum we frequently mention swings back and forth, and it will continue to do so. Right now it is hurting in our imports, but it is helping in our exports. There we go again, mentioning how hurting one sector helps another sector. Right now the hurting seems to have the upper hand.

Retail sales took a drop in February. Restaurants are hurting, too. We have 3 relatives working for Red Robin and they told us that they were being told that sales were down compared to last year and adjustments had to be made. What adjustment? They raised prices--which is counter productive to me. In the short term, the increase in prices will make up for a certain amount of decline, but in the long run I feel that my dad was more right when he said that every dollar up in price you go, you lose another buyer.

House prices in our area were released this week, and it seems CA is presently looking at about a 21% decline in prices over the past year. So much for the 2% decline that was predicted by the "experts". We've been telling you for over 2 years that things would get bad. Just for comparison, let me point out that here in CA we saw the last price bubble burst in 1988-89. It took 10 years before prices went back up to those '88-'89 levels. That isn't 10 years from the bottom, but 10 years from the top in prices to 1998-99 when they matched those high levels again. Don't look for any relatively quick fix to this situation. This time it is probably worse because of the extremely high volume of homes that are in trouble due to the greedy mortgage lenders. I still want to know how it came to be allowed to have 100% loans to people that didn't have to qualify on income???? The positive thing that we can report is that our local real estate agents are reporting that things are improving--and what does "improving" mean? It means that there is more activity on the part of potential buyers. More offers are being made, too--and if they can get to actually being able to borrow, we might see an upswing in sales---but don't look for an increase in prices. The buyers want a deal.
The real problem is to get the buying public to believe the bottom in prices has been reached. That works in reverse, too. When times are good, people rush to buy as they think prices will continue to go up. We have now had the period when they don't buy because they think prices will continue to go down. Let's hope that the activity carries thru to actual closed sales. It is better for all of us for this to happen. The inventory in houses is so large due to the foreclosures that this time we have a different picture in real estate. BUT--there is always a different situation--and the results are the same. Prices go down for different reasons, and they go up for different reasons. Don't be fooled when someone tries to use old reasons, saying it won't happen again, because those reasons have been attended to. We will see when the turnaround comes, don't worry. It's like in stock, we very seldom buy at the exact bottom and sell at the exact top. Just be aware.

 Today's Thought---
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Scientific finding---
A snail can sleep for 3 years--(Some people might want to do it, too--with this stock market)
Or--Remember the ostrich trait about the sand---------


Mike

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