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Knife Fight!

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Dems fightin' words!

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You've been bought, you've been sold
You've been locked outside the door
But you stand there pleadin' with your insides bleedin'
'Cause deep down you want some more


(Billy Joel)


The Friday fray is a furry soiree as the beaten bears come out to play. While expiration action typically bookends the session, Elmer shook up the mojo with his murky morning commentary. A one-liner crossed my trusty Bloomberg screen and quoted our Fed head as saying "those not hedged for higher rates to lose money." Aside from the obvious implications implicit complications, that "spark" set a series of events in motion throughout the intertwined financial markets.

John Succo has written extensively about the relationship between the dollar/yen and bonds. His analysis on today's Buzz notes the importance of USD/JPY 103 (now below) and the fact that our fixed income markets are down in synch. It's too early to ascertain if this is "the" point of maximum pain (give up) for Asian holders of our bonds but it's a dynamic we must respect. With 54% of our debt in the hands of outsiders, meltage in the greenback will ultimately undermine those investments. When (if) those bonds get sold, rates ratchet higher, ARM's squeeze the consumer and the leverage in the system will exacerbate the unwind.

That, of course, is the "other side" of the debt induced and liquidity juiced rally that we've seen. We often discuss the coincident existence of bull and bear markets but the ursine elements haven't "mattered" because the opposing force has been more powerful. And yes, this may be the necessary respite the bulls need before they romp into '05 with great vengeance and furious anger. Sentiment and volatility levels suggest that most traders believe the bounce scenario will unfold as they've been conditioned to buy dips.

I currently have two legs in my metaphorical bear suit which implies a 50% conviction in the downside. It's the first time I've dabbled with the fur in quite some time (and with good reason) but it felt right and I pulled the trigger. The reason I shelved the costumes, so you know, was because it became too difficult to assimilate the various time horizons into one posture. For purposes of this schnitzel, however, it's a pure trade and I will "trail my stops" accordingly.

In the meantime, I'm not seeing much that is supportive of a Snapper as crude is up almost 4%, the internals are fugly, leadership sectors have failed (false breakouts in the semis and banks) and the dollar is puke. Still, with expiration in play, we'll need to stay on our toes and remain lucid. S&P 1175 is the nearest-term resistance and BKX 100 is an important support. And yes, as we're nostalgic in the 'Ville, we're gonna fire up a sushi print and welcome Jason Roney in style. Wasabi!

As always, I hope this finds you well.

R.P.
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