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Monday Morning Quarterback


A rally does not a dollar make but if this is the beginning of something snazzy, it could have ominous implications for equities.


Good morning and welcome back to the flickering pack. A new week is here in the city of critters as traders dig in with a fresh set of jitters. Bennie and the Feds will tiptoe on the tightrope tomorrow and headline a hectic expiration week that will feature a little something for everyone. Earnings? On the way. Economic reports? You betcha! Holiday parties and an extra five pounds? Hey-it comes with the territory. 'Tis the season on Wall Street and it's gonna be a humdinga! As my friend John Brett used to say, "Take care of the minutes and the hours will take care of themselves."

That's easy for him to say-he's retired!

Alas, as we roll up our sleeves and ready to tie a neat little bow around 2006, I thought a quick sniff of the metrics would be helpful. As I write this, I can almost hear Lindsay Campbell saying "one word answers!" I couldn't do it then and I won't do it now. But it'll be close-I promise.


Two words: Performance anxiety. That's what's been driving the market since the "rally that nobody saw" failed to stop to let anyone on. The dips have been quick, the tension is thick and more than 70% of active money managers trailed the S&P into Halloween. This is a double-edged sword, naturally, and the onus is on Minyans to respect the price action while not fully deferring to it. I will offer that the "rumortrage" of massive deals (Deere, Home Depot, BankAmerica for Barclays, Citi break-up, the LBO frenzy) smacks of froth (as do the sentiment surveys and compressed volatility) but those are anecdotal observations more than timing mechanisms.


Big earnings this week, including Goldman Sachs, Bear Stearns, Applied Materials, along with a slew of economic numbers (CPI on Friday). I don't believe that this metric will "matter" into the year-end bender (either way) but I'll again offer that margin contraction, if and when, may create a value trap door for the pure fundamentalists.


Keep an eye on S&P 1400 and S&P 1425, as there will be an expiration "pull" to them both (I think we touch the bottom end of that band camp). BKX 115ish is also worthy of a mention (all-time highs) for as go the financials, so goes the tape. Other elements to monitor are the trannies (is that dandruff?) and market breadth (2:1 either way, when coupled with the financials, has been the money "tell.")


We touched on the Ecuador situation last week and, thus far, it hasn't mattered. Why? Not sure, but with Brazil at all-time highs and the financials trading dry and drier, it's clear that it's not yet on the Grinch list. The dollar remains key to all things financial, both from an "asset class deflation vs. dollar devaluation" standpoint and with regard to the emerging trends of nationalization and isolationism.

Minyan Mailbag


In your WallStrip interview you indicated concern about the lack of understanding of the difference between housing stocks and real estate. I plead guilty--can you flesh this out a bit more? Minyan Frank

Minyan Frank,

Housing stocks, as with any equity, are discounting mechanisms. They started getting smoked the summer of '05 (we talked about this at Minyans in the Mountains 2) before embarking on the bounce they're currently enjoying. It should be noted, when looking at these names, that they've almost rallied to a full 50% retracement which, from a trading standpoint, could signal the end of their jazz.

While these names are leading indicators, real estate itself is a lagging indicator. We've been monitoring the underlying trends of foreclosures and subprime loans and they paint a much different picture than the rally in the homebuilders. There is a disconnect between what we see on our screens and what we feel in our wallets. With a negative real savings rate and debt levels off the charts, the "next, best buyer" is promised to nobody.

Yes, those with ample wealth will keep a bid under select pockets in specific demographics. And no, these trends aren't linear, which is to say that there will be fits and starts as with any bubble. How and when this 'plays out' is a function of many variables, including the dollar. Ironically, that's the element propping up the markets as foreigners get more bang for their beat up buck.

I expect more foreign ownership of real estate properties, particularly in the commercial space. For 'between the coasts' owners of multiple homes, however, the adjustable rate bar tab is on the way. Please keep close tabs on the subprime lenders. Given the interwoven financial fabric, this could transfer the risk from the consumer to financial institutions of all shapes and sizes.

Random Thoughts

  • A rally does not a dollar make but if this is the beginning of something snazzy, it could have ominous implications for equities. A move through DXY 84.5 would be the first technical clue that strange things are afoot at the Circle K.

  • As it stands, I haven't made sales in my metal holdings. In fact, after my mind meld last night, I'm comfy tucking these plays away (including Golden Star (GSS)).

  • Ben Stein touched on the "Haves vs. Have Nots" over the weekend, echoing a theme that is all too familiar to the Minyanship. Expect this topic to become increasingly mainstream in the years ahead as the chasm continues to unfold.

  • Robert Toll's comments last week that traffic trends were "dancing along the bottom" amused me. Until he puts a toll on open house showings (hey-he could brand them!), I don't see how he's gonna monetize that data point.

  • Elasticity of Debt? Yep, that's the 'bring it home" thought of the day. Between Citadel's creative financing and Ford's $5 beans worth of convertible notes, it's clear that there's still some stretch in rubber band. Man, I wish my jeans were as forgiving!

Good luck today.


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Position in metals, financials, gss

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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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