Update

First of all, I closed WM today at $7.00 for a 40% gain in under three months. Although they bounced up from a close of $6.25 yesterday (which I missed while out getting lunch) they pretty much collapsed over the past two trading days. Also, my WM position was less than 5% of the Obfuscation Fund at yesterday's close. Even if it fell another 20%, it would contribute much less to the bottom line.

Another thing I want to comment on is the trade deficit. Despite being in a recession, the trade deficit jumped in April to a 14 month high, according to Bloomberg:

The gap grew 7.8 percent to $60.9 billion, more than forecast and the most
since March 2007, the Commerce Department said today in Washington. Excluding petroleum, the shortfall was little changed.

...

Imports grew 4.5 percent in April, the biggest gain since November 2002, to a record $216.4 billion. The average price of imported petroleum, at $96.81 a barrel, and the total amount of the fuel bought, were both the highest ever.

In other news, Chinese regulators surprised the markets by raising bank reserve requirements a surprising 1% to 17.50%. They are trying hard to put the brakes on their economy. I will be watching closely for their inflation numbers. Another thing that may put downward pressure on the Shanghai bourse is this years biggest IPO coming up.

Finally, I think I've found an opportunity for an interest rate play. The two-year Treasury yield is now at 2.89%, as the markets expect a couple of quarter point raises by the end of this year. I can't imagine that the coming wave of bank failures along with soaring unemployment will allow Bernanke to raise rates. The major banks are all finding it harder and harder to raise capital. I can't wait to see how much of a discount Lehman needs to give in order to raise the $6 billion that they plan on. Incidentally, since their market cap is now around $7 billion, this will be about an 85% dilution. That's almost as bad as the National City (NCC) deal, where they had to offer a 30%+ discount. Essentially, that 30% discount allows the buyers to just turn around and sell their shares on the open market, subject to the drop in price that all those extra shares for sale causes. NCC's stock is currently at $4.77. It's so low that it will be almost impossible to do another deal. Here's how the CEO explained being put on probation by bank regulators:

Peter Raskind, National City's chief executive, said that the company won't release precise language of the agreements with regulators, but he reassured investors that National City now qualifies as having "the highest Tier 1 capital ratio among large banks in the United States." - Marketwatch

Unfortunately, we've heard this before. But as long as there are fools to believe them, they'll keep lying. NCC has $153 billion in assets. If they go under, they'll probably take the FDIC's puny $50 billion out with them. Nothing like a good old panic to reverse this ridiculous sentiment that Bernanke will raise rates. I'm not saying that he won't raise rates, just that I think it's more likely that he'll lower them. He is Helicopter Ben, after all.

Back to my idea about buying 2-year Treasuries. I will have to decide whether to buy the bonds themselves, or to buy an option on SHY (iShares Lehman 1-3 Year Treasury Bond index ETF). They're asking $1.05 for a Dec $82.00 call. With the current price at $82.35, I think that's a steal. SHY doesn't move much though: the 52-wk. range is $79.64-$84.61. I will need to call Schwab and find out what the terms of buying 2-yr. T's is. Then I will decide how to play this.