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Everything But the Kitchen Sink


We used to play for dollars, now we play for dimes?


"There are things in this world which are out of our control. Sometimes we like to blame ourselves for them so we can try to make sense out of them."
-Jack Bauer, 24

While I'm not the resident volatility expert in the 'Ville---that distinction belongs to the honorable Mr. Succo--I wanna further some thoughts that he's been discussing for some time.

Over the last few days, we've seen a very large seller of 5-year S&P puts. That's done two things: one, it put a bid to the market (the buyer of those puts must buy stocks as a hedge) and two--perhaps more importantly--it's depressed vols from already compressed levels.

The proliferation of "income funds" is a familiar topic to Minyans and, for us old schoolers, offering a sense of deja vu. I remember back during my Mother Morgan days, I had accounts selling "eighths" and "tinis" (1/8th's and 1/16th's) in size, collecting dimes in front of the bulldozer.

They made money for a few years, paving the way to a conditioned acceptance of this "free money" strategy. And then the bulldozer came in the form of a market decline, shutting most all of their doors.

This evolution--coupled with a distinct lack of hedging/protection--has vols, as measured by the VXO, at decade lows (which, ironically, was just about the time I left Morgan). And while part of the "vol crash" is a function of the sloshing liquidity (which is inversely related to volatility), there is a much more compelling story in our midst.

There aren't many of us left who remember what real volatility looks like. It is our hope that by reading the 'Ville, you'll be prepared for the squall when it arrives. For by the time you see it in the mainstream press, it'll be too late to proactively position yourself.

Random Thoughts

  • We offered some vibes late yesterday on how the market, given our daily tells, should have acted better. The bevy of tech "spurs" should give the herd ample prodding today. If Hoofy doesn't take full advantage of this open window, look for the angst we mentioned Monday to manifest.

  • Buy the rumor, sell the crude? Yesterday's poppage was the biggest since Katrina so some giveback is intuitive in the framework of a "healthy pullback" and with regard to "selling the catalyst" (Bush) makes sense. How you play is a function of your time horizon, which is a topic we mapped yesterday. Consistent with that, I made some disciplined sales on the trading side (discipline must always trump conviction) but continue to be weighted to both energy and metals.

  • And yes, I did roll some of that coin into SunMicro when the stock dipped below $6. There was chatter that the company were gonna buy Novell but if that happens, I'll eat a crate of chopped liver from Sammy's Roumanian.

  • Pep highlighted GE among his "wish list longs" at our TD-Ameritrade APEX Ritz last week. Keep that in mind as the stock has pulled back to acne support at $36.50.

  • I've got pa-lenty of puts on my sheets (insert Jack Bauer torture quote here). As such, I'm afforded the ability to play opportunistic long-side tries.

  • Have you had time to check out MVTV beta? We've gotta lotta original programming in the pipe-and several tweaks to make-but it's up, it's real and it's fantastic.

  • Tell Check! Dollar? Bearish. Breadth? Bullish (2:1). Emerging markets? Leaning green. The all-important financials? Stronger than a mule's breath.

  • I had a great call with Professor Laurie McGuirk in Australia this morning. It was 2:00 AM. And he was sleeping. At this hour, that's a good sign!

  • "When are you going to learn? Last time you disrespected the Gators, you lost our bet on the Final Four and National Championship. Do you have to learn another lesson? Here's the wager: $250 to Ruby Peck Foundation from me if OSU wins the National Championship. If the Gators win, you apologize on the site and vow to never disrespect the Gators again and you include one random thought per day for 10 straight trading days giving some praise of the University of Florida ." Minyan Charlie Poe

    I'm Sorry! I vow never to disrespect the Gators again!

Answers I Really Wanna Know…

  • Do you see commodities holding above the all-import...uh, the technically significant CRB 293 level?

  • Do you think Dick Cheney is ticklish?

  • Did anyone see that dog our new intern picked up at the bar last night?

  • Do we really live in a society that worships Donald Trump and Paris Hilton?

  • Is money the new idolatry?

  • Can you feel the pressure on Hoofy to hold this rally?

  • After all, if the bulls can't finish strong, wouldn't that speak volumes about a potential change in the tenor of the tape?

  • Do you see the size insider BUYING in Freeport Mcmoran (FCX)?

  • We used to play for dollars, now we play for dimes?

  • Do you think Television's JeffMacke® and MarketWatch's Herb Greenberg wanna have an Old School style wrestling match at MIM4?

The Following Buzz took place last night between 4:00 PM and 5:00 PM

I posted this Buzz last night after the SunMicro results and wanted to redeux it as it makes an important point. Heck, it was such an important point, Television's JeffMacke® shared it with his global posse!

"We've been involved with SunMicro--this you know--and while I haven't chewed through the numbers yet, I will offer a quick thought.

The letters "KKR" are more important than "EPS." In the current private equity environment, this will lend a bid to the rumortrage mill.

The stock is currently trading up six percent."

OK--so, having now chewed through the numbers (they were snazzy vs. expectations)--the stock is trading up 8.5%. I'm no tech analyst--that's for darn sure--but assimilating my metrics, I'm NOT selling this stock into the opening strength.

I think it has room to $8, technically, and my sense is that the specter of a private equity bid---whether real or perceived--will serve as a bovine backstop.

That's about it from where I sit during this Hump Day trading fray. I sincerely hope this finds you with some jingle in your jeans and a smile on your puss.


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Position in SUNW, energy, metals, financials, long vol
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