What's Working

I don't know what is working today besides the metals. Gold is running again and it is looking like we are going to see 52-week highs here for Newmont and the rest of the sector before you can blink an eye.

Due to my hiatus......I have been thinking first from a fundamental standpoint what I want to be long and short in this type of environment where inflation is ramping and it looks like the Fed is going to be raising rates with more certainty.

I think I want to be short the financials and the homebuilders. I think that I want to be long the metals and maybe some isolated foreign stocks that meet my criteria (hopefully NCTY!).

Specific trades I am looking at? I can buy the January 2006 $55 or $50 PUTS for a very attractive price. Wachovia is one of the biggest sellers of MBS and ABS and you have to imagine that that income stream is going to slow down as the housing market and loan issuance slows.

Jan 2006 may sound like to short of a time horizon - however, if we get the inverted yield curve which I think is coming - most of the banks should sell off at least temporarily until the Fed begins to ease.

The thing I like about Wachovia in addition is that the options are dirt cheap and I can generate 20-1 leverage for an approximately 2% cost. I can generate 8-1 leverage for basically 0% cost. When you can leverage yourself out 6 months at those ratios - you know you are dealing with an asset perceived by most to not be volatile - so will have to be careful on this one.

Regards,

BG