Squeezing the Melon

By Todd Harrison  OCT 06, 2004 9:00 AM

Mr. Raines, the principal would like to see you.


"Maybe you can help me straighten out my Longfellow?"

--Thornton Melon, Back to School

Good morning and welcome back to the minxy flack. Yesterday's snooze was a two-sided bruise as the tape took a break from digesting the news. While Hoofy was busy filing his nails, the bears seem to think that this rally just fails. "I see the good charts across the landscape," said Boo to his crew as he chewed sour grapes, "but as soon as the bulls get their books into shape, they'll come to realize that there is no escape!" Is he sniffing glue at the Minyanville Zoo or has something else started to brew? It's meaty, it's minxy, it's pleasantly plump so get ready, my friends, for a hike up the Hump!

There's always two sides to a story and nowhere is that more evident than the flickering ticks. While the Matador crowd can look at the recent resilience and opine that the action is buoyant, the ursine set will view the denial as an opportunity. That interpretation is what makes a horse race and it's the singular reason why trading is an art rather than a science. It's also the reason why the popular press can reactively rationalize and paint obvious pictures after the fact.

I view the big picture as a race between the psychology bubble and the credit bubble. The former is frail but determined, choosing to believe the vernacular over the proof positive. I can't tell you if the prick will be geopolitical, economical or financial but it remains my opinion that this metric will eventually tip the scales. The offsetting force is credit creation and the continued spew of easy money. We've seen what an open spigot can do (remember Y2k?) and the rising tide can lift all spirits much longer than most expect.

In the meantime, we're left to digest mixed signals from every angle. Our country's potential leaders are at each other's throats, the macro markets are haphazard and the technicals are perhaps a bit too alluring. I'm not discounting the jazzy and snazzy chart action in a litany of sectors--we know perception is reality--but we must balance that by remembering that technicals are one of four primary legs under our trading table. We must also appreciate that another metric (fundamentals) are about to take center stage.

Finally, and at the risk of overstepping an extrapolation, I would like to share an observation. I've been watching the metals with wide-eyed wonder and weighing the causation. Minyans know that I've been a big picture bull in this arena (along with energy) and believe that the constant supply of greenbacks will dilute (and has diluted) the value of a dollar. But the all-of-a-sudden persistence of the bids reminded me of the all-of-a-sudden offers in the airlines a few years back. It's likely a low probability comparison and may very well be a function of perception (rather than reality) but, as I'm always honest with ye faithful, there it is.

We power up this Hump Day pup to find Japan in the green (two month highs), Europe pink (slightly red), silver on its horse (oy vey is meir!), the dollar up 40 bips (trades dry vs. metals) and the stateside futes flattish. The reality show of the day will involve Franklin Raines and his vociferous defense of Aunt Fannie (FNM:NYSE). As this has the potential to ripple through still waters, we should pay attention to the debate and, more importantly, the collective reaction. Other than that, our mainstay tells remain the same as we ready ourselves for a brand new game.

Good luck today.


No positions in stocks mentioned.