Do We Or Don't We...

Bounce that is... I think we do. This has been the worst start to a fourth quarter... EVER. The SPX index is down 4% from its highs. Just reversing those losses would itself represent a nice little rally into year-end. I think we will see that. The question is whether it is going to resolve the larger macro issues at hand, such as "where does the Fed finally stop?", "what is the REAL inflation rate in this country?", and "how come the U.S. has sucked as an investment haven for the past year in comparison to oh, say, Germany and Japan"? Simple answers to those questions I don't readily have, but I do want to caution the reader that one shouldn't be putting money to work before they ARE answered.

There may well be some hidden gems amongst the retailers after all. I know I railed against them just yesterday, but hey, that sector deserves it... Down 15% since August -- it's insane! Anyway, take a look at WMT -- the biggest retailer in the world, the mighty behemoth from Bentonville, Arkansas. It is CHEAP by almost any financial measure, it is CHEAPER than it's been historically speaking as well. It may be entering Russia soon and it has embarked on the path of modernizing its fashion image (yes, Urban Outfitters of all places is moaning about WMT's new fashion drive). In addition, GUESS where the gas_price-squeezed U.S. consumer is going to gravitate if he can't afford those sexy high-fashion clothes anymore? That's right -- WMT should do well in a slow-growth, low-consumer confidence environment -- because that's where most middle-class American families can still afford to go shopping and not get their faces ripped off price-wise... I recommend selling some at-the-money WMT Dec05 45 puts @ 1.40 vs. stock @ 44.90 -- this is 19 volatility (average daily move of 1.2%) and pretty high, historically speaking again, for the name. The premium would give the seller a break-even purchase price of WMT stock @ $43.60 (not bad at all!!), and if the stock closes above $45 on December expiry, the seller will just get to keep the premium. It's a 49 delta option, so for every 100 option lots sold, the seller in effect gets longer by 100*0.49*100=4,900 shares of WMT. The premium kept for every 100 lots is 100*1.40*100= $14,000, not bad going at all. Note also that WMT has OUTPERFORMED the rest of the retail sector in the last month, just as every other stock in retail universe has coming crashing down to earth (take a look at ANF, KSS, AEOS, BEBE). There is money to be made in this name and the smart money is going to plough back in here, once things stabilize a bit in the market. Just my 2 cents worth for the day.