We may witness a grand scale asset class readjustment. Potential scenarios include wiping the speculative CDS slate clean (contracts not backed by underlying collateral), massive revaluation (Yuan), the introduction of a “convertible currency” or crude being denominated in something other than dollars.

Performance Anxiety

There is widespread acceptance that we’ll continue to see forced selling by the hedge fund community as money migrates from that once golden goose. That may prove true but there’s another side to the trade.

In the mutual fund universe, the conditioned mindset is that the only thing worse than losing money is underperforming the benchmark. Given the horrid performance in the mainstay averages, that currently isn’t competing for mind share.

Should the tape catch a sustainable bid, the potential for a “long squeeze” will manifest in kind. If that happens, look for the “master beta” plays such as Research in Motion (RIMM), Google (GOOG), Apple (AAPL) and Baidu (BIDU) to spring back to life and lead the speed.

Sell Hope, Buy Despair

Entering September, we shared that one of two things would happen as corporate credit came due. Either the market would suffer from cancer that chewed through the system or we would see a car crash as the wheels fell off the wagon.

We’ve since experienced both. The S&P is down 35% in a matter of months, credit continues to clog our systemic arteries and lame duck politicians have thrown in the towel and passed the buck to the new administration.

The biggest potential landmine in the marketplace is widespread speculation that General Motors (GM) or Ford (F) will file for bankruptcy before year-end.

That could set the stage for our final surprise of 2008—for when the auto industry is finally fitted for a toe tag, it may be time to close your eyes and buy the market for a trade.

R.P.


Did you know the doors to Festivus 2008 are officially open? Have you yet locked your spot for the critter trot as last year's soiree sold out? (This is our annual event to commingle our professors, partners and Minyans while chowing down and listening to live music. The very best part? It's for the kids in the good name of my grandfather.)