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April 3, 2006

A Tale of Two Kirks

Day One of Q206 saw equity indices end little changed. However, the small change was the net result of an early charge followed by a very weak showing in the afternoon. Both the NDX and S&P 500 tested the upper boundaries of recent trading channels, pulling back sharply once again. In the case of the S&P, it was the 4th pullback from the 1310 level in 3 weeks. I'm still convinced we are witnessing a significant directional change in equities.

Adding to my conviction is the continued slump in bonds. The yield on 10-year Treasuries topped 4.9% today. Commodity prices also marched onwards and upwards, with the CRB gaining more than a half percent. Sugar was the largest mover on my screen, sporting a 2.5% gain. But, of course, commodity price increases are not inflation... just signs of a robust economy, right? Don't believe it!

Despite another quarter-dollar move in silver, not to mention a 1% day for gold, mining shares failed once again to join the party. Pan American Silver and Newmont Mining shares slumped more than 1%. To be accurate, the large-cap miners are the ones not participating. The HUI gained a half percent today and is just under its late-January high. I have no explanation for the divergence between large and small cap miners, except to speculate that traders anticipate a wave of merger activity. As I said, this thought is only a guess. Surely, time will reveal the true reason.

General Motors completed a deal to sell its GMAC division for about $7.4 billion. Given total debt two orders of magnitude larger, I doubt this sale will have much impact on GM's financial health. Traders seem to agree... GM shares were down over 5%... and the deal is already being branded as a fire sale. Sadly, I never got short GM simply due to uncertainly over Kirk Kerkorian's potential actions. He is capable of triggering nasty short squeezes when intimately involved with a company.

I am, however, still heavily short Intel, which slumped on high volume and is once again failing 2004 lows. I've been keeping a keen eye out for brokerage house recommendations... or more specifically the lack thereof... the theory being that if the big houses have abandoned public admiration of one of their darlings, there may be very little buying power to support the shares should this month's earnings report be unfavorable.

On a closing note a fellow blog writer, Charles Kirk, was on the receiving end of a short piece in this week's Barron's. It is quite encouraging to see independent writers receive such recognition. I encourage everyone to read The Kirk Report on a regular basis and to subscribe to his premium service. Charles always has valuable insights to share.

Disclosure: Long NEM Calls; Short INTC; Long INTC Puts


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