Word On The Street
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Oil Outrage With Dennis Gartman
On Wednesday, Michael Masters, a well known hedge fund manger turned 90s commodities king, testified before the Senate while crude oil was surging $4 to new all-time highs. Masters shocked Wall Street after he said speculators do have the power to drive up the price of commodities. He explained that that financial instruments that speculators use to get long commodities could cause a crisis in the future. Masters said his solution to this problem is to keep pension funds out of the commodities markets and make it harder for financial institutions to forgo limits on speculative positions. Dennis Gartman, author of The Gartman Letter, joined the show to discuss the issues with speculators in the commodities market. Gartman thinks Masters is on to something, but he feels that his solution goes against free market principles. Gartman thinks the way to solve the problem, is to make it harder for speculators to remove commodities from the market through storing them for their positions. Gartman pointed out that the government was smart by not adding to the Strategic Petroleum Reserve. He said the the government could pop the oil bubble by releasing 100 million barrels from the SPR, but he doesn’t think there is a chance the President would do it.
Big Oil Take
Big oil executives testified before Congress to defend record profits in the face of surging oil prices. What is the trade? Finerman said she was embarrassed for big oil companies. She thinks companies like Exxon (XOM), ConocoPhillips (COP) and ChevronTexaco (CVX) could increase capital expenditures to get some of their profits off the balance sheets. She also thinks they will commit $15 billion or more towards exploration. Adami said get long the oil service stocks. He also pointed out Fluor (FLR) and Jacobs Engineering (JEC). Macke explained big oil companies don’t actually benefit from the continued increase in oil prices. He said they would prefer to see oil at high prices for an extended period of time. Najarian recommenced the steel and coal sectors as the best trade.
Tech Trade
for the first time since 2002 tech has passed up financials as the largest sector in the S&P 500. What is the trade? The crew spoke with Joe Clark, Financial Enhancement Group Founder & CIO. Clark said he likes big cap tech and he recommended buying IBM (IBM), Microsoft (MSFT) and Hewlett-Packard (HPQ).
Sector Trade - Presidential Candidates
The traders talked about which sectors would be winners under a McCain or Obama administration. Finerman said Obama will be good for alternative energy but McCain will be good for coal and bad for alternative energy. Najarian agreed about Obama and said McCain would be good for financials and bad for alternative energy. Macke said McCain would be good for defense. Adami said defense spending will increase no matter who is in office. Bottom line, Obama is good for defense, technology and alternative energy, while sectors like healthcare, coal, financial and services could suffer - McCain would benefit healthcare, services, coal and financials, with sectors like defense and alternative energy suffering. The technology sector should benefit under either administration.
Trader Radar
Shares of Borders (BGP) were among the most actively traded stocks on the NYSE Wednesday.
POPS&DROPS
POPS- Time Warner Cable (TWC ) popped 4% after the company announced plans to spin off its cable division. Adami said play at your own risk. Borders (BGP) traded up 9% after speculation swirled around Wall Street that Barnes & Noble might buy the company. Macke said sell the news. Medtronic (MDT) jumped 3% after Goldman Sachs said the stock should hit $57 within 6 months. Najarian mentioned the company issued strong earnings on Tuesday.
DROPS- AIG (AIG) fell 3% after the SEC issued a Wells notice against former CEO Hank Greenberg. Finerman said considering the poor action in the market that wasn’t that bad. Boeing (BA) lost 5% after the company’s CEO said record high oil prices will keep the airlines at bay from ordering new planes. Adami said buy the dip. Moody’s (MCO) plunged 16%. Finerman said that blaming a computer glitch for mistaken triple-A ratings on securities is a problem for the company.
Final Trade
Macke picked the United States Oil Fund (USO) with a stop at $105. Adami picked AMR (AMR). Finerman recommended buying the Oil Service HLDRS (OIH) and hedging it with USO puts. Najarian said buy Disney (DIS).