The number of traders betting that oil prices will drop outnumbers the number of traders who believe they will rise by the largest margin ever. Some analysts believe prices will fall significantly lower in the near future – at least into the low $60 a barrel range – after soaring to $75 a barrel in August.

Supply has outrun demand this year as a global recovery has yet to accelerate. Yet, oil prices more than doubled from February to August and are up about 50% from where they started the year.

Now, many traders are positioning themselves to profit from a pullback. The gap between prices of options betting on a decline in prices and those that would profit as a result of a rise in oil has widened to a record 10 percentage points, according to five years of data compiled by Banc of America Securities-Merrill Lynch.

Put options, which give traders

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe (also see my post “Gone A.W.O.L. - to Slovenia and Switzerland“). Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

While investors’ hopes of an economic recovery might have got ahead of reality, the cartoonists continually reminded us of worrisome issues …

Source: Signe Wilkinson, Washington Post,  June 18, 2009.

The past week’s performance of the major asset classes is summarized by the chart below - a mixed bag so to speak.

Source: StockCharts.com

A summary of

Despite rising Treasury Note yields, US stock markets yesterday closed at their highest level for 2009. Also, commodities were driven higher by reports indicating that the recession is abating, but the US dollar retreated on concerns of the huge issuance of government bonds.

Elsewhere, Chrysler completed its deal with Fiat, the US Treasury Department announced that ten banks would repay TARP funds, and the Obama administration is dropping its plan to cap salaries at firms receiving bailout funds and has backed away from a large-scale reduction in the number of agencies overseeing financial markets.

Coverage of these events on camera this week included discussions with John Hussman, Chris Whalen, Peter Peterson, Paul Krugman, Mohamed El-Erian, Laszlo Birinyi, Jim Rogers, Jim Grant and Francisco Blanch.

The selection kicks off with the highly regarded John Hussman sharing his wisdom and concludes with an interesting snippet on Africa as an investment destination.

At the beginning of 2009, institutional and individual investors were sitting on a mountain of cash, pulling money out from everywhere - including equities, commodities and municipal bonds. That’s nearly $9 trillion, according to the Federal Reserve.

But those same investors are starting to unleash a landslide of cash into the markets. According to the April, 2009 Merrill Lynch Survey of Fund Managers, optimism about global economic growth has reached its highest level since 2004, prompting investors to lower their aversion to risk.

The percentage of investors who are overweight in cash in their accounts fell to 28% in April from 41% in March. That’s a significant drop, and it represents a lot of cash being put to work elsewhere.

Those numbers make sense, according to AMG Data. The $3.7 trillion money market fund sector experienced cash outflows of $35.5 billion in February, $51.15 billion in March, $18.7 billion in April and $15.2

Municipal Bonds: Two Muni-Bond Fund Investment Opportunities

by David Fessler, Advisory Panelist

At the beginning of 2009, institutional and individual investors were sitting on a mountain of cash, pulling money out from everywhere - including equities, commodities and municipal bonds. That’s nearly $9 trillion, according to the Federal Reserve.

But those same investors are starting to unleash a landslide of cash into the markets. According to the April, 2009 Merrill Lynch Survey of Fund Managers, optimism about global economic growth has reached its highest level since 2004, prompting investors to lower their aversion to risk.

The percentage of investors who are overweight in cash in their accounts fell to 28% in April from 41% in March. That’s a significant drop, and it represents a lot of cash being put to work elsewhere.

Those numbers make sense, according to AMG Data. The $3.7 trillion money market fund sector experienced cash outflows

Banc of America Securities analyst Scott Buck rates Jefferies as a SELL:

a. Concerned about near-term profitability and that shareholder interests are a distant third behind clients and management and employees.

b. Aggressive investments in areas like investment banking will continue to weigh on profitability

c.  many areas of Jefferies’ business will remain sluggish for some time including underwriting and high-yield (HY) sales and trading.

d. Net-net — shareholders’ interests suffer at the expense of employees and management. Case in point: Year-to-date revenue is down 33% and comp expense is up 12% ; they suspended the dividend this quarter

d. $13 target, which is fair for a company we expect to earn a sub-10% return on investment for the next two years.

Track Scott’s pick at:

http://trackthepros.com/categories.php?category_id=1499

The market is cheap on earnings.

The subprime issue is contained.

That’s been the mantra. I think the mantra is wrong. While the overall market is not expensive on earnings, certain parts are a lot more expensive than they look. Why? Well the earnings growth estimates are a hoax right now, specifically in the financial sector. Do they really know what’s on their books? Do they really know their exposure? How would they know? Can some of these mortgage companies look into the hearts and minds of their newfound (2005/2006) borrowers and tell who is going to default? I know they exported much of these risks in CDOs to hedge funds, but their is still exposure – but no one knows how much. So their earnings are at serious risk.