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Coffee Klotch


Glazed doughnuts, glazed eyes.... what's the difference?


It was a brisk morning in the city of critters as the menagerie gathered at Ollie's for their weekly nosh. The mood was particularly upbeat in the crowded diner as talk of new homes, fancy cars and expensive gifts dominated the conversations. And why not? Santa arrived early for those fortunate enough to have their stockings stuffed and the dairy divas had high hopes for a heifer holiday. The fab five nestled in their nook at the corner table and talked tape, treasure and the temptation of flickering ticks.

Hoofy was enjoying a hearty laugh and then suddenly cleared his throat. "Wait, wait...lemme guess! The economy isn't strong--this entire rally is a function of debt and liquidity right?" (pauses to look around the table...) "I can live with that!" The surrounding area exploded with laughter as Boo, wearing a torn parka and tattered jeans, sat there and seethed. There wasn't anything he could say to the brazen bull and he knew it. His credibility was shot, his voice was horse and, to be honest, he really didn't have the energy to get into it. His hopes hung on an extended tape and a defended reality, both of which are old hat at the breakfast chat.

Sammy the slithery statesman sensed the imbalance and slid forward. "There's no denying that the last month has been a blessing for the bovine breed," he offered in the general direction of Hoofy without making eye contact, "but a bit of perspective will serve you in good stead. While certain sectors are star studded, the Dow is flat for the year while a swatch of widely held names have been shattered. And while the forecast currently calls for a green Christmas, please recall that 2004 was littered with hurricanes and bouts of pain."

There was a sudden hush as the dose of reality dripped into the collective coffee. "Trying to explain away the electoral celebration borders on reactive rationalization," he continued, "but please don't confuse what was with what will be. With gold at sixteen year highs and the dollar probing nine-year lows, it's clear that the rest of the world isn't as sanguine as the equity elephants. And while that may not be today's business, we must remember that bull and bear markets coexist daily with the residual friction finding its way to tomorrow's front page."

Boo slowly nodded his head as he digested the wise words. "After ten difficult months and a very uncertain election, the bulls believe that the holidays are a lay-up." He pushed up from his seat and walked over to the counter as the animal spirits eyed his every step. "That psychology introduces a dynamic that is difficult to quantify. Do you think this Fannie Mae (FNM:NYSE) news is good? Franklin's pain could be nine beans--yes, billion-- if the SEC slaps 'em on the wrist. And with the maze of derivatives and leverage involved, that could topple dominos all the way to Red Dye Junction! But does it matter?" He reached down, picked up a glazed doughnut and took a big bite. "Not until it does."

As Boo chewed on his tasty treat, the rest of the critters digested the message. They've been through a lot together and knew better than to ignore each other's opinions. With the market extended and much of the money already spent, the potential for a psychology shift was the single biggest caveat nestled in the landscape. The ramifications are robust but the reality is that risk exists. It's the other side of the coin but it must be respected. That is, after all, what makes a market.

Good luck today.

position in fnm

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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