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May 3, 2006

Mitigated Losses

Today was correction day for a few of our recent star performers in the commodities arena. Oil got clobbered to the tune of about two bucks as rhetoric over Iran abated from headlines. After breaking through the $70 level, which provided resistance twice in the passed year, it would be natural for the black stuff to back-test that level before moving higher. Unleaded gasoline also fell nearly a dime per gallon, so maybe we'll see some relief at the pump in coming days.

Silver's strong rebound got checked for a half buck. Some traders blame the introduction of the silver ETF for the recent bounce, saying the fund has been soaking up silver left and right. I have doubts about that argument because gold has been steadily setting new highs. There simply seems to be tremendous demand for both metals. In any case, silver's recent volatility makes it ripe for a sharp move, perhaps downward if the silver ETF theory has any substance or perhaps upward if people countering that bet with shorts get squeezed.

Miners suffered large losses again today, and again saw a rebound, though they did not fully recover their losses as was the case yesterday. Newmont Mining and Pan American Silver slumped 3% and 5%, respectively. Miners are a difficult bunch to weigh at this juncture. The large caps continue to see a stark underperformance of the smaller members of the clan. No one knows how much South American politics are truly weighing on share prices, and should metals prices decide to snap back for whatever reason, the miners could really take a beating. For all these reasons, I continue to stick with my only base metals positions.

Equities started weakly today and crept lower for most of the session until a last-hour rally pared losses nearly back to parity. Apart from commodity-related equities, the weakest shares on my screen include XM Satellite, Intel, and Adobe. XMSR is a company I have been panning for some time. After a couple of successful shorts last year in the $30s, the shares lost my attention and are now looking like one of those proverbial big fish that got away. XMSR shares command only $17.50 today. My reasons for shorting those shares were expectations of subscriber disappointments along with the need to issue more shares and/or debt to stay liquid. All those events came to pass, and I don't see how the environment for XMSR will improve any time soon. As for shorting them going forward, it's possible, but my attention remains focused in other areas for the time being.

Disclosure: Short INTC, AAPL; Long INTC Puts


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