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December 12, 2006


Something surprising happened on the market today, but it happened before the Fed's announcement: stocks fell. The pre-Fed portions of sessions coinciding with Fed proclamations tend to be very, very flat and inactive. Yet the mid-morning action saw the market swoon enough to take the NDX to a one percent loss and the SPX more than a half percent lower. These losses were mitigated by a slow drift upward into the Fed release and a spike higher afterwards, but we still kept the tape red for the day.

What caused the big bump in Bull Road is a bit of a mystery, but I suspect it had something to do with the earnings release from Best Buy. Sales and earnings at the retailer came in a bit shy of expectations, and despite the fact that BBY reaffirmed guidance, traders didn't believe it. The curious part of the BBY release came in the form of a statement from their CEO who expressed concern over pricing power for televisions, a top-margin product for Best Buy and other retailers, as a result of "a tremendous amount of manufacturing capability." Translation: too much capacity leads to excess inventory leads to lower prices. These overproduction problems are a direct product of easy money and over-consumption in the U.S., and the problem is not unique to TV manufacturers. It is endemic in most things electronic, and component manufacturers such as Intel, SanDisk, and Lam Research will feel a pinch manifold what retailers feel.

A second curiosity came by virtue of the fact that Circuit City shares fell in commiseration with Best Buy. Did traders actually deduce that trouble at one company implies trouble at a competitor? Wall Street charlatans must have had the day off!

With all the fun Fed stuff to keep an eye on, what's one to do with his other eye? My focus was on Newmont Mining, which I was happy to see put in a big reversal today to recover from a 2% loss and close even. The recovery, I'm sure, is directly related to gold's afternoon rally, and I look forward to seeing whether NEM bulls can use this momentum to push the resolutely past $47.60. At least we have something to help prop up the eyelids this week.

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


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