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November 2, 2005

Problem Solved

Yesterday, Intel dropped nearly 3% as Dell's woes brought inherent flaws in Intel's business position to light. Apparently, Intel solved all its problems last night since today the stock fully recovered yesterday's losses. In fact, many of our economy's woes were resolved overnight! Consumer spending must be back on the expansion track, as reflected in the 3% gains in Best Buy and Circuit City. Housing will no doubt find a way to weather ever-rising long-term rates and the expanding inventory of unsold homes, and so investors flocked back into the shares of Centex (up 5.9%), Toll Brothers (up 7.8%) and Hovnanian (up 3.7%). Startlingly, shares of Google gained only a meager $1.30, but given their $70 run over the passed two weeks, a deceleration of upside movement was certainly due. It will pass.

If only our beloved President could solve his woes in such succinct fashion, why the markets may just tack on another 15% next week! No doubt that without the quagmire of stalemate in Iraq or the pesky distractions related to treasonous acts from within the White House, our markets would be well above the superfluous days of a half-decade ago. Of course, there is also the peripheral issue of a current account deficit emulating the best of all treacherous bubblesÂ… but that problem doesn't exist as long as our trade partners keep rolling their fiat dollars back into U.S. Treasuries, also known as IOUs to the rest of the world.

In reality, market movements boil down to psychology, and at this moment in time, our financial system, as precariously positioned as it is, appears to be under control. Markets that are ripe for large downswings don't fall without a catalyst. They don't fall until a growing suspicion of imbalance or fear of loss drives an appropriate risk premium back into asset prices. Fear still lacks breadth among traders and investors, and until it spreads, we bears will look like paranoid fools.

Disclosure: Short INTC; Long INTC, BBY Puts


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