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Exec's Gas Idea Runs on Fumes

June 21, 2006

Dear Fellow Options Trader,

"The difference between stupidity and genius is that genius has its limits." -- Albert Einstein

Normally it would be too early in the week for something to not only make my hit parade of stupidest ideas of the week, but also to win the competition hands-down days before the markets close on Friday. But hey, when someone really campaigns for it, I like to recognize the effort! Such is the case with AutoNation CEO Mike (don't call me Michael) Jackson.

It seems Mr. Jackson has forgotten his company is an automotive retailer. Sure, they make money from aftermarket products as well as warranty and repair services, but basically he and the company earn the "real" money from selling cars. Spikes in interest rates and gasoline prices have made his job harder, and that's why I am scratching my head over his suggestion that the government increase the tax on gasoline by another $1 per gallon.

He says his motivation is to reduce our dependence on foreign oil. But by hatching a proposal that could very well put a dent in his entire industry, he might want to start thinking about his next career move -- preferably one that doesn't give him a forum for his wild ideas!

About the only silver lining in this debate is that Mr. Jackson isn't running for public office, as such a suggestion would make him as popular as Nancy Pelosi at a National Rifle Association convention. On second thought, scratch that analogy, as the congresswoman from San Francisco might be VERY popular at an NRA convention, although not necessarily as an attendee!

Apparently Mr. Jackson thinks his business is strong enough to withstand the triple whammy of higher short-term interest rates, $3 gasoline and another $1 tax thrown in for good measure. To that, I say Mr. Jackson, I want some of whatever you're smoking!
A $1-per-gallon tax on gasoline would be one of the most regressive taxes imaginable, and clearly would hurt the proverbial "little guy" and be just another nuisance for the wealthy. I don't believe Mr. Jackson has considered how this tax proposal places proportionately more burden on those with lower incomes, and I suspect that demographic makes up the bulk of his customers at AutoNation.

Any argument that begins with the premise of giving the government more of our hard-earned money is a losing argument. In fairness to Mr. Jackson, he also proposes giving some sort of rebate to the taxpayer. But we all know that once the money gets in the hands of the government, the likelihood of it making its way back to us is slim-to-none.

I'll bet Mr. Jackson's opinion isn't shared by Austin Ligon, CEO and chairman of CarMax (KMX), and a quick look at a comparison of the two companies might indicate Mr. Jackson should spend less time jawboning about gas taxes and more time figuring out how his competition outsells him!

TRADE OF THE WEEK UPDATE

We saw a higher options volume in the five minutes leading up to the end of the trading day than we've seen in weeks. The closing bell brought in a massive collision of options hitting the systems in both calls and puts.

The volatility of the market closed well off the lows as the market struggled to hold the triple-digit gains, which it did -- albeit barely. We expect the new range in the market volatility is being set at this time, so we are not expecting the volatility to return to the early May levels.

That said, we've been exceptionally patient during the last few weeks of wild market activity, and it's time to get back into the trading game. I've got my eye on two possibilities that I think can reward us for our patience, so look for an e-mail from me tomorrow with our trade of the week.

CATCH ME ON FOX NEWS THIS WEEKEND

Hey gang, I've been invited to make two appearances on the Fox News Channel this weekend. First up is a spot on "Your World with Neil Cavuto" on Friday, June 23, which kicks off at 4 p.m. Eastern. Then on Saturday, June 24, you can catch me on "Cavuto on Business" at 10:30 a.m. Eastern. Hope you can tune in!

Good luck trading and remember -- pigs get fat, but hogs get slaughtered, so don't be a hog!


Jon "Dr. J." Najarian
Editor, ChangeWave Options Trader

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