You can look at the menu but you just can't eat
You can feel the cushions but you can't have a seat
You can dip your foot in the pool but you can't have a swim
You can feel the punishment but you can't commit the sin

(Howard Jones)


The crimson thrill continues to spill as the bulls try to hike back into the 'Ville The combination of eye-popping input prices and a funky Fannie (FNM:NYSE) was the story this morning but the attendant action has been somewhat subdued. While the tape is lower--which is, in and of itself, worth noting--the dip shtick remains good and thick. Hoofy is snoozing on the couch on the other side of my office and told me not to wake him unless things got out of control. From the looks of the volatility indices (VXO is down), he could be nappin' for a while.

Indeed, most market participants I speak with are viewing this pullback as a necessary evil. And I would assume that they're talking about the issues that are actually pulling back. When I read the news on Fannie last night, I thought that November expiration might have gotten a whole lot juicer. After all, deadlines and accounting issues seem to mean something in most parts of the world. Not in Franklin's ivory tower and not today. I "see" the lack of fear in corporate bond land (thank you Brian), I just don't get it. And you know what? I'm not afraid to admit it.

Did you ever have one of those dreams where you see a monster but when you try to scream, you can't utter a word? That's what I feel like sometimes when I watch the financial markets. I know that my job is to focus on the journey rather than the destination and I've admittedly strayed from that mission at times. I also understand that true traders shouldn't care why markets move, they just need to be there when they do. I get all that. And I even appreciate that most folks have confused liquidity and debt with a bull market and economic expansion. It's understandable, given the current state of media relations.

The ultimate arbiter is the bottom line and the simple truth is that the market is never wrong. I'm not smart enough to tell you when things like Fannie or debt or derivatives or the dollar will matter--it could be days, it could be years. What I can and will continue to do is ask you to ask questions of yourself. Will you be in financial shape if they suddenly do? And perhaps more importantly, will you be in emotional shape if they don't? They're not mutually exclusive questions as managing the latter will surely impact the former.

There are six weeks left in 2004 and trading tensions are gonna heat up with each turn of the calendar page. For many, the recent rally has served to relax risk parameters as the market has gotten "better" since the election. Yes, an element of uncertainty has been removed and the momentum is to the upside (even after today). But higher prices--by definition--are riskier than lower prices and we cannot confuse the issues at hand. I'm not saying you can't play--that's not my job--I'm simply asking you to remain conscious and lucid in your approach. For by the time you read about why the market is lower, it'll already be too late to position yourself accordingly.

Fare ye well into the bell.

R.P.