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Monday Morning Quarterback


I was stuck in the middle of two very different points of view...


Some day we'll look back at this,
And it will all seem funny

(Bruce Springsteen)

Good morning and welcome back to the unflappable pack. It's been a full week since I've been at my desk to take stock of a tape that's both sleek and grotesque. Having spent nine days on the road with Hoofy and Boo, I had a chance to bond with them both and listen to their disparate perspectives. I'm not sure if anyone out there is a fan of Pardon the Interruption but I couldn't help feel like I was stuck in the middle of two very different points of view. The following is a random sampling of the topics of conversation.

The Midterm Elections

Hoofy: Sure, discord on the Beltway is potentially disruptive, but the drivers of this rally remain largely unaffected. Even the bears who argue that liquidity is driving the market--what the absent M3 suggests--understand that the same agendas remain. The casualties of the democratic sweep, such as Big Pharma, have already suffered and money simply rotated into other groups. Plus, the perception that the war in Iraq may find a light at the end of the tunnel is a potential positive. Just in time for year-end performance anxiety!

Boo: Yes, the same structural fabric remains--but that's not necessarily a blessing. The American people have spoken and they want change. While the war was certainly a factor, the economy was as well. What if the chasm between perception (all-time highs in the DJIA) and reality (times are tough) are coming to bear? If psychology shifts, all bets are off for consumer spending given the aggregate debt levels and the state of housing.

The Economy

Hoofy: Goldilocks recently stubbed her toe, but there's no cause for alarm. Interest rates are low and earnings are heading in a positive direction. Plus, if the dollar flakes lower (note the dandruff on the DXY), asset classes can continue to rise. Dollar denominated holdings won't benefit on a global basis but that's a discussion for a different time.

Boo: (Holding a Barron's in his hand) Did you read Ableson this week? He talks about a dichotomy that should be fairly familiar to Minyan faithful. Inflation in things we need, deflation in things we want. That's what's squeezing the former middle class out of existence. Debt is fueling consumer spending as the "have nots" try to keep up with the Dow Joneses. This can--and will--only last for so long.

Commodity Stocks

Hoofy: The rotation into metals and energy (XAU + 19%, OSX +16% since the October low) has been a long time coming on the heels of the early autumn commodity meltage. In fact, their price action bodes well for the "reflation theme" and, as often discussed in the 'Ville, rising tides tend to lift all asset class boats. Commodities have clear sailing to the five-year trendline, which will come into place at CRB 338.

Boo: But w
hat is this action telling us? To look at the CCI (an equal weighted commodity index), input costs have never been higher. Corporate must do one of two things--absorb the costs and crunch margins or pass them along to an already burdened consumer. That could be good for these names on a relative basis, but you can only spend absolute returns. And a global slowdown will absolutely impact every asset class.

The Look Ahead to 2007

Hoofy: I'm jazzed to attend the December 1st Minyans in the Mountains Financial Conference and Charity Benefit. Jonathan Golub, the U.S Market Strategist for JP Morgan, will be joining the panels. He's got a bovine bent and the data to support it. Plus, Steve Galbraith, the talented former Morgan Stanley U.S Strategist and a principal at Maverick Capital, along with the savvy soothsaying Jeff Saut of Raymond James, who has a knack at finding bull markets, should have some fine things to say.

Boo: Yeah, there are gonna be some smart seers there and the line-up is pretty balanced. Plus, you know Santoli will keep the mojo flowing as he's a veteran of Minyan Mingles. Personally, I'm looking forward to the party at Country--one of the nicest nooks in NYC--to kick it with the professors and a number of Knicks. The best part? It's 100% for the kids and that's a trade with a fantastic risk/reward no matter how ya slice it!


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