Theme 3: Return of the Dollar

January thought: While risk remains -- for instance, if OPEC decides to denominate crude in Euros -- it's important to remember that the dollar "crash" already occurred. The greenback is off 37% since 2002 and a stunning 97% since 1913. Factor in the widespread negativity of money managers, rappers and supermodels, and a counter-trend bounce doesn't seem so strange.

Update: The dollar lost eight percent to start the year and meandered sideways before enjoying a spirited sprint that tacked on 13% since the middle of July. Our view was that all roads lead to deflation as a by-product of debt destruction and the greenback would appreciate as asset classes deflated in sync.

That process played out until the U.S government changed the rules of engagement. The introduction and potential of a massive rescue plan halted the natural evolution of the markets as the specter of hyperinflation was introduced.

Throughout this process of price discovery, the three core tenets of Minyanville were capital preservation, debt reduction and financial intelligence.

We must now respect the possibility that capital preservation could conceivably mean capital conversion into alternative currencies such as the Japanese yen, Australian dollar, Chinese yuan or gold, at least until such time that it’s confiscated.


Theme 4: Relative Performance of Pharmaceuticals and Consumer Non-Durables

January thought: I still foresee the energy sector reassuming the top weighting in the S&P (as first shared in 2003). As our financial destination isn't as important as the path that we take to get there, however, defensive sectors such as pharmaceuticals and consumer non-durables will likely outperform on a relative basis as global slowdown fears permeate.

Update: The premise of this posture was that margins in the consumer non-durables would expand as input prices deflated. Stocks like General Mills (GIS), Campbell Soup (CPB) and Johnson & Johnson (JNJ) didn’t pass those savings through to customers and the stocks sprinted towards 52-week highs in the face of deep double-digit declines in the mainstay averages.

The pharmaceutical complex, for it’s part, out-performed the broader proxies by six to ten percent, depending on your measuring stick.

It should be noted that when the specter of the rescue package emerged, I shifted my stance on the consumer non-durables. If our Wishbone World toggles towards hyperinflation, input prices will adversely affect the operating margins. The potential of perception shifting in that direction was enough for me to book those trades.


Theme 5: The Other Side of Zero-Percent Financing

January thought: While subprime was the first domino to fall, more ominous issues loom. The other side of zero-percent financing will manifest through credit-card delinquencies, auto loans and other forms of consumer-credit deterioration.

Update: After years of bellying up to the “no money down, zero-percent financing” bar, the bill has finally come due for the consumer. Corporate America, the bartender in this analogy, carries the risk that patrons will pass out before settling up.

Given that the consumer generates 70% of GDP, the credit crisis will continue to ripple through the proverbial pond. As discussed last week, one of two outcomes -- a cancer or a car crash -- is unavoidable and neither is particularly pleasant to discuss. The government, with the introduction of the rescue package, effectively attempted to buy the cancer and sell the car crash.

Included in the initial rescue proposal was language aimed at addressing outsized credit card debt and auto loans. Regardless of how these issues are addressed, the resulting ramifications for technology (consumer and enterprise), retail, real estate investment trusts, credit card franchises and the commodity complex will ripple through the proverbial pond.