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Happy Trails


One, er, step at a time.


Where are you going now my love?
Where will you be tomorrow?
Will you bring me happiness?
Will you bring me sorrow?


Good morning and welcome back to the chips that stack. We've waited all year for this coming season so we can put rhyme to political reason. With eight days to go and the polls neck and neck, the critters are curious who is on deck. "Most think that they'll lift when one of them wins," said Hoofy the bull as he sported a grin, "I'm waiting around on needles and pins to climb on the ride when the rally begins." Can the bulls duck the gun as they ready to run or will Boo and his crew have all of the fun? We'll know soon enough as we ready to thrill and dig in our heels for a romp through the 'Ville!

It seems like the election has been a panacea potpourri for the better part of '04. Drifty and indecisive markets? We'll surely see sponsorship once we gain electoral clarity. Higher energy prices? Defined and discerning leadership will find a way to lower the prices at the pump. Geopolitical jitters? Only eight more days, so the thinking goes, before we can let our guard down and take a deep breath. It has become more than a presidential poll--it has become an inflection point for societal concerns that will seemingly solve a plethora of problems.

I opined at the beginning of the year--when everyone was on the "we're fine until the election" trade--that the one-sided consensus could lead to weakness into November and a reflex rally upon resolution. That may still happen although it's starting to feel like a lift will either launch this week (early) or won't materialize at all. I offer this with two main thrusts behind my thought process. First, there is the possibility that the election is contested (ala 2000) and that would obviously introduce more uncertainty to an already fragile process. And perhaps more importantly, it'll likely be a matter of time before investors realize that neither administration can cure the imbalances that ail our economy.

The hope that is nestled among those two scenarios is that "parked money" finds a home in equities as a reflexive function. The tape, as sluggish as it's been, has absorbed a ton of negatives in the last month and that's quietly encouraging. Energy costs are through the roof, corporate malfeasance is back in vogue, technical levels are breaking in synch and, one by one, leaders have been taken out back and shot. With fewer alternatives to choose from, money managers have been squeezed into a few select sectors (internets/trannies) and rotated their risk accordingly. If the bear is to legitimately scare,we know, those hiding spots must be uncovered and smothered.

I will again draw your attention to the financial sector as the single best proxy for the broader tape. Why? In addition to sporting the highest percentage weighting in the S&P, they also serve as proxies for two potential trouble spots: derivatives and psychology. The former (an effect rather than a cause) is "invisible" (read: ungamable) but will manifest in this complex if and when it does. The latter is something that I've long maintained to be the single biggest bubble out there. When icons of the investment community like Hank Greenberg and Sandy Weill start fending off character attacks--and when this occurs against the backdrop of outsized bullish sentiment--our antennas start to stand on end.

We power up this saucy pup to find Europe, Asia and the dollar all listening to some chin music. With Friday's sloppy close, it's no shocker that this morning's muck is tinted crimson. Again, a pre-election lift (ala March 2003) would likely catch some folks napping and, as such, we must respect the potential for it to occur. I'll be watching my best intra-day tell (breadth), the portly piggies and our oft-discussed levels (S&P 1100, NDX 1440, XBD 130) as a trail guide as we mount the Monday Minx.

Good luck today.


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