The S&A Digest: "Pricey Puts Signal Market Top"

Pricey puts signal market top... 401k credit cards... Badiali on the Yamana deal... OBAMA! on his kingdom...

Signs of a market top? The spread between the risk premiums of put and call options on the S&P 500 is unusually high. Normally, the spread is around 6%. But since August, speculators have favored puts, causing the spread to widen to 8.1%. The last time this indicator approached these levels was in July 2001, just before the S&P 500 fell 34%.

To Americans of a certain age and persuasion, savings are only dollars you haven't spent, yet. According to The Wall Street Journal, "more individuals have been borrowing from their 401(k) plans or taking hardship withdrawals in recent months." The official statistics won't be released until next year, but a number of 401k plan providers report a "noticeable" uptick in the demand for loans.

What happens to consumers when real wages are nearly stagnant for 30 years, while inflation discourages savings and a credit-led bubble fuels speculation in mortgage-bought housing? There's absolutely no incentive to save and every reason to borrow – which is what John Q. Public has done for 30 years. Now, with the equity value of American homes at a record low and borrowing against 401ks soaring, how will Mr. Public keep up the borrowing and the spending? We don't know, dear readers, we don't know.

According to a CNN article, OBAMA! says we should ignore the repeated failures and catastrophes of the central government – we just haven't had the right man at the helm! Government, he says, could make living here akin to going to heaven.

New highs: Alnylam (ALNY), Janus (JNS), McDonald's (MCD), Occidental Petroleum (OXY), Petrobras (PBR), Park Electrochemical (PKE), SK Telecom (SKM), Berkshire Hathaway (BRK-A).

In the mailbag... slim pickings. When the complaints stoop to criticizing our grammar or spelling, we know our stocks must be doing great. Keep the bull market going – call us fraudsters, hacks, and know-nothings: feedback@stansberryresearch.com.

"I haven't seen much written on the merger of NTO, Meridian and Yamana. Would Steve keep the stock through merger and have it converted to Yamana shares or just sell NTO?" – Paid-up subscriber Craig Reynolds

Badiali comment: Yes, this "new Yamana" is a good-looking company. The merger may create a new major gold producer. The plan is to increase production to 2.2 million ounces per year, by 2012. That's about double what they do now. The merger consolidates some nice South American mines (through Northern Orion) with Meridian's Esquel… In the long view, barring major governmental implosions, this company will be worth a lot more money when it ramps up production.

"Please ask your proofreader to learn the difference between 'hoard' and 'horde.'" – Paid-up subscriber Martha

"hoards of wealthy residents… Porter, you'd better keep Goldsmith's hand off the helm. Rocks ahead. Surely you guys can afford to let a professional editor read your copy before you post it." – Paid-up subscriber C. Ken Covey

Regards,

Porter Stansberry

Baltimore, Maryland

October 8, 2007

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