Dave’s Daily

There’s a lot of bonus money riding on a year-end rally. Today marked the subprime bailout rally that appeared so well publicized in advance so I’m not getting the big reaction but: it is what it is.

Tomorrow we get the employment report. Based on everything we’ve seen thus far the odds of a 50 bps interest rate cut, and perhaps even 25 bps, have gone down dramatically. The bond market vigilantes have spoken in that regard since recent economic news has been good and financials are rallying. Officialdom is working overtime supporting the markets so why would we not expect more rate cuts? It’s been a team effort.

An interesting observation: Barclay’s popular India ETN [INP] versus the previously popular closed-end India Fund [IFN]. The natural instinct is to go with a lower cost ETN/ETF usually versus the closed-end fund. But something unusual is happening. INP has been extraordinarily strong when compared to its underlying index or NAV. In fact, recently INP reached an eye-popping premium of 18% compared to old favorite IFN which trades at a 10% discount to its NAV.

According to Barclay’s website, thru October 31st, INP’s MSCI India Index rose 63.41% YTD while per ETF Connect’s website, IFN’s NAV rose a slightly better 65.13%. Both achieved great performance and over 2007 both INP and IFN have produced similar 75% YTD returns also thru October 31st.

When evaluating major holdings you won’t notice much difference between either.

As an investor you might then logically wish to take advantage of the arbitrage opportunity by shorting INP and going long IFN. But, there’s one problem–you can’t. In calls to both Fidelity and ETrade, to name two brokers, there are no INP shares available for shorting and both firms indicated “hard to borrow” conditions would persist. Institutions have the capacity to have more shares issued for their own shorting [50K shares] may start taking advantage of this opportunity.

At the very least, if you’re interested in the India stock market and growth story IFN might offer a better opportunity at this time.

That’s all today as I’ve an appointment to attend. Tomorrow is employment day and there should be “some” reaction to the data. And, it’s also the Pearl Harbor Attack anniversary. Then Monday may be still in anticipation of the Fed interest rate decision. Finally there’s Santa to contend with.

Have a great weekend.