Brunello with Brian
By Todd Harrison Nov 20, 2003 8:48 am
Europe continues to slip lower.
Good morning and welcome back to the Shaq. After three days of bumps and a whole lot of jitters, there was a tight grip in the city of critters. Yesterday's Snapper (a bovine crowd clapper) was masked as a gift--but was it a trapper? We'll know soon enough (if this was a bluff), so settle in team and let's sort through this stuff.
The critters and I had dinner last night with Scott Pollack and Professor Reynolds and celebrated Brian's appointment as Chief Market Strategist at M.S.Howell's. It was an upbeat affair and, as I've known both men for some time, I was pretty psyched that they've joined forces. Over a some spaghetti, meatballs and a bottle of Brunello, we talked family, friends, tapes and ticks. Here's what went down:
Toddo: I'm really happy for you both--this seems like a great fit.
Hoofy: (raising his glass) I'd like to propose a toast--to M.S.Howell's, a strong corporate bond market and Dow 12,000!
Boo: (not raising his glass) Hey Hoofs, have you ever thought of a television career? You've got teletubbie written all over you! You call yesterday a Snapper? In the old market, we woulda busted through S&P 1040 and never looked back. It was a pretty anemic Snapper if you ask me.
Toddo: (nodding his head) It did feel a little forced, I suppose, but now that the uber-short-term oversold condition has been alleviated, we should get a truer sense of supply and demand. I will say this--the brokers are either screaming for downside attention or they're sucking in the shorts for an equity enema. The news is that bad--the only question is whether it pricks the psychology bubble or deja boo's.
Brian: The corporate market is telling you that it's not a concern---yet.
Snapper: That's what I'm saying!
Boo: Here we go...
Brian: I don't have an agenda, Boo, I'm just listening to what the bond market is telling me. A few years back during the Worldcom debacle, corporates were melting but none of the equity guys noticed (or cared) because stocks didn't go down. We all know what happened next. I'm not a bull or bear by nature--I'm just an objective observer. Corporates continue to hum.
Toddo: The debt, derivative and housing bubbles don't concern you?
Brian: They do, Toddo, but it's important to note that the structure of this debt has shifted and it may not be an immediate problem. Back in 2001 and 2002, all of this debt was set to mature in 2003 and 2004. Much of that has been rolled out 2006 and 2007. So, in effect, they've bought themselves more time.
Boo: Isn't that just one piece of the puzzle, Brian? The consumer is levered to their eyeballs because they've refinanced their home and have zero percent financing on their car. The dollar, while apt for occasional bounces, is melting against all major currencies. There's clearly geopolitical risk, the market is massively complacent and all of the classic warning signs are there. Am I wrong?
Brian: Let me put it this way--I've told my bullish friends to enjoy it while it lasts because it's not gonna last forever. I've told all my bearish friends to be careful because it can last for a bit. My biggest fear, quite honestly, is that it keeps going for another year or so and completely wipes out the shorts once and for all. If that happened--and the corporate debt issues come back into focus, nobody will come out a winner.
Hoofy: (pensive) So, uh, Toddo--what are you looking at tomorrow?
Toddo: NDX 1380 remains a potential pivot point for tech as it couldn't push through yesterday. S&P 1040-1045 (yesterday's highs and multiple November bottoms) should act as initial resistance for the big board. On the downside, yesterday's lows (probed near the opening) will serve as the first support. And, as always, I wanna watch the all-important financials (particularly the brokers), the semis (Intel (INTC:NASD) presents at a conference today), the breadth and the macro tells (especially the dollar).
Daisy: (looking very bored) Pass the wine, Scotto.
Sammy: Also remember that Friday is expiration and dealers will need to hedge their short gamma. That sometimes leads to selling lower and buying higher which, when coupled with the reactive hedgies, may lead to whips and change. Remain lucid and don't force 'em, guys, it's a lot easier to lose money than it is to make money.
The eight of us sat back and digested the information (along with our food). The rest of the crowd at upscale Elio's kept sneaking nervous glances towards our table. I couldn't decide if they were scoping Daisy, noticing Brian or just surprised that five metaphorical critters got a reservation in prime time. Whatever the reason, I didn't really care. We had good friends, fine wine and down time. Let them think what they want.
Good luck today.
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