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Diamonds in the Rough

By

Has anyone seen Mariano?

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Glory days well they'll pass you by
Glory days in the wink of a young girl's eye
Glory days
Glory days

(Bruce Springsteen)



Good morning and welcome back to the beantown sack. The pressure is on and tensions are high as Yankee fans breathe a collective sigh. "I wish we coulda just put 'em away," said Boo to his crew from his perch at Fenway, "the harder they fight and the longer they stay, the more it'll hurt at the end of the day." Will his instincts come true for the boys from Bronx Zoo or can the Red Sox turn the heat up anew? We'll know soon enough if the weather permits but first we must field the flickering blitz!

While I was juggling the always fun earnings assimilation with fourteen innings of additional angst, I received a phone call from a buddy who runs multiple nine figure size. He is, by most accounts, one of the most talented traders on Wall Street and has built a small fortune gaming the ins and outs of the daily dance. After the requisite pleasantries, the conversation turned to the tape and the tricky nature of our current juncture. I muted the game and focused my attention on the frazzled voice of my fabled friend.

"One of my investors just met with Soros and said that he'd be thrilled with ten percent returns for the foreseeable future." I must have read that somewhere because my eyes didn't flinch from the game. "He thinks there are too many hedge funds chasing too few opportunities and it's crowding the edges out." Again, this sounded all too familiar as we've been watching it unfold before our very eyes. "I'm just looking for good balance sheets and figuring that either industry consolidation or relative performance will serve me in good stead."

The first thing I offered was that if he was looking for credit influence on equities, Brian Reynolds is the smartest guy I've ever read in that regard. "I've followed the horse for the last four years and he's been right as rain." When he asked what I thought about the market here, I found myself choosing my words carefully. "They sure don't act like they want to go down and have absorbed alotta big cap bullets in the last coupla weeks. And if rolling rotations are the correction of choice, that'll bode well for the bulls." I paused to watch the third passed ball of the dribble away from Varitek and then continued.

"That said, I don't think either one of us would be shocked if they took 'em apart." "Exactly!" he offered, obviously vibing with the thought of some downside. "But," I continued, finding myself in the unfamiliar position of playing devil's advocate "anxious traders are staring at the same levels and pressing for performance. And to top it off, the tight '04 trading range has 'em trading bigger size to make up for the lack of movement. That compression is dangerous."

"Totally," he said, "I've been using two times leverage myself in certain situations. It's the only way you can get any bang for the buck." I nodded my head in agreement as I've heard similar strategies around the Street. "But what's your gut feel for the next few weeks?" he asked. "I'm torn," I said, "because I can see crude spilling into the election (positive catalyst) but there are more than a few valid causes for concern. Further, I'm not so sure that November 2nd will offer electoral resolution. I'm trying to hit singles and position myself intelligently. I've got a smattering of positions in the financials, tech and energy but my risk profile is clearly defined."

I watched David Ortiz shatter his bat as the winning hit flailed softly into center field. "Dude--I gotta go. I am officially bummed out." I hung up the phone, turned off the television and sat quietly by my desk. I empathized with the frustration in his voice and realized that it has become a common theme in recent discussions. More and more industry types are growing tired of the grind and looking elsewhere for sources of income. That'll help alleviate the capacity but the sad truth is that most folks won't have a choice. That's why we harp on the importance of discipline and conviction in the 'Ville. At the end of the day, we want the final decisions to be yours.

Good luck today.

R.P.

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