Random Thoughts: The Greek Turnaround and a Massive NYC Crimp Coming

By Todd Harrison  FEB 10, 2012 9:45 AM

Positioning into a now-uncertain weekend.

 


Yesterday afternoon, I offered the following vibe on the Buzz & Banter:

"I return from my biz dev melds to find Hoofy large and in charge, riding the NASDAQ higher on the heels of speculation that Apple (AAPL) will release the iPad3 in March and drop the price point on the iPad2 to $299. Given Apple's out-sized weighting in the NDX, that put a match under what was heretofore an anticlimactic session.

A fine line divides stubbornness with using prices to your advantage -- it's called the bottom line -- and with that in mind, and S&P 1360 upon us, I've used this move higher to double down on my bets, raising my short-side stab to 50% of what I would consider a full position (size matters, particularly when you initiate a position) while at the same time adding to my Research in Motion (RIMM) long (as I said I would as a function of price; stops here are set below the recent lows).

This doesn't shift my defined risk parameters; in fact, it makes them entirely more important, as a move through our S&P price target (drawn with a crayon) will trigger my stops."

As I pride myself on being honest, I must disclose a material fact -- my game plan, as discussed on Wednesday night when I co-hosted Bloomberg Rewind with Matt Miller -- was to "unleash the hounds" if the tape spiked higher (from an already overbought condition) on the heels of a perceived Greek debt resolution.  Yesterday morning, as discussed at the time, the tape opened flattish, which had "an entirely different set of implications as we find our way forward."

Those implications had to do with the reaction to news being more important than the news itself.  If there was indeed a Greek debt resolution, as there appeared to be yesterday, and the market opened flat, that, through my experienced eyes, was all we needed to know about the near-term direction.  And given Apple was the meat of the move -- which doesn't matter in terms of price action, but does matter in terms of breadth of the rally -- I decided to double down on my short-side bet into the afternoon lift.

In short, I didn't build my short exposure because I expected Greece to push back against German demands for deeper cuts, as they again have; I assumed that chapter of the sovereign sequel to the first phase of the financial crisis had closed, at least for the time being, opening the door to the next chapter (be it Portugal, Spain, Italy, social unrest, geopolitical strife -- it's a big book, perhaps longer, and more profound, than War and Peace)

This unexpected twist -- on a Friday no less, following a 25% four-month rally -- may indeed catch the bulls leaning the long way but again, the reaction will matter more than the headline itself. 

We will monitor the action in real-time on the Buzz & Banter (free trial!) and given the hole the tape opened in, I'm inclined to pick at some exposure as a function of discipline and a matter of course.  After all, bulls and bears make money but pigs get slaughtered.

The New York City Wishbone

Wall Street is surrounded by the East River on one side and Trinity Church on the other, which pretty much sums up the fate of financiers in today’s day and age.

A little more than a year after Goldman Sachs (GS) CEO Lloyd Blankfein said he was doing “God’s work,” the rest of the industry has been left for dead in the wake of the worst financial crisis of our lifetimes.

Banks and brokers have cut -- or will cut -- 100,000 positions in financial services, of which 35,000 are in New York, and bonuses were slashed 30% to 50%.

While few will shed a tear for bankers in the bunkers, there is an additional twist: Institutions have capped the cash component of the compensation mix, opting instead to issue restricted stock that can’t be sold for a few years.

We would be wise to pay attention to this evolution. While securities activity drove 14% of state tax revenue -- 7% in New York City -- last year, the suddenly crimped cash flow will dampen discretionary spending in everything from retail sales to real estate.

Billy Ray Valentine famously said in Trading Places that the best way to hurt rich people is by turning them into poor people. While Wall Street executives are universally reviled, pissed-off New Yorkers might want to be careful what they wish.

Random Thoughts:
R.P.

Twitter: @todd_harrison

Position in SPX, NDX, RIMM

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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