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Monday Morning Quarterback


We're T-minus nine sessions away from year-end investor letters and alotta folks aren't keeping up with the Dow Joneses...


Good morning and welcome back to the flickering pack. On the heels of a weekend that featured 110" of pure plasma pleasure, we arrive at our turrets to welcome the home stretch of 2007. As the dust readies to settle on yet another year of twists and turns, the Matador Crowd is standing proud as the critter of choice with the Wall Street voice.

The world is buoyant, this we know, with countries around the globe eyeing historical highs. "What is" vs. "why" are two different discussions but they're academic in the eyes of portfolio managers. We're T-minus nine sessions away from year-end investor letters and alotta folks aren't keeping up with the Dow Joneses. Yeah, it's performance anxiety that would make Bob Dole blush.

True, there are many reasons to fret. The economy is softening, the yield curve is inverted (signaling recession or worse), wage growth is tepid, geopolitical conundrums abound, presidential ratings are pukey, sentiment is frothy and we're technically extended.

And yes, there are reasons for Hoofy to be hopeful. Profit growth is on the rise (through cost cutting, but that's a discussion for another day), liquidity is plentiful, the action is fabu and land mines are leading to rolling rotations rather than outright migrations.

The two questions that will define our collective path, in a nutshell, are this: How much "good" news is baked into the market cake (as a discounting mechanism) and how much stretch is left in the elasticity of debt?

Last week, as we cast an eye ahead, we offered six tells that would help us navigate our way to bottles and models. OK, maybe they're not bottles and models. Maybe they're bottles and babies. Or babies and bathwater. Either way, I thought it would be helpful to briefly review those keys to the vault.


  • An encapsulation of our finance based economy, the piggies are proxies for the overall market (as the highest weighting in the S&P) and structural smoke (emerging markets, hedge fund issues, illiquidity or risk aversion).

  • BKX 115 is now in the rear-view mirror and it's a level that can be used as a downside stop for the broader tape.

  • Goldman Sachs, pinned to a triple digit deuce on Friday, remains a key tell. I continue to sense that we'll look back at the NY Post cover jinx and view it as a frothy sign that a correction was due.

  • Mother Merrill upped Citigroup from neutral to buy, citing valuation. Keep an eye on this name as well.

The Homebuilders

  • HGX 240, a level touched last week, was a 50% retrenchment of the entire down move. I would not be at all surprised if that level caps 'em into Christmas.

  • HGX 220-224 is the first bovine zone bar.

The Transports

  • They continue to edge through a technical pattern called "head and shoulders."

  • If these names are still a leading indicator of the overall economy, as many believe, they are offering cause for pause on the blind ambition tour.

  • An upside move through TRAN 4800 will alleviate this pattern and, by extension, the technical caveat.


  • The synthetic magnet that "pulled" the S&P towards 1425 into Friday has been removed.

  • Please allow a few hours this morning for the post-expiration hangover to abate.

  • Expect volatility to increase with these mechanical influences in the rear-view.

  • Understand that many year-end (December) hedges are no longer offering protection.

  • The tape is, for all intents and purposes, "free to trade" into year-end.

Emerging Markets

  • Ecuador doesn't "matter." Yet.

  • Brazil and the Templeton Russia Fund (TRF), two of our mainstay emerging market tells, both had strong weeks while India has shown some signs of stress.

The Dollar

  • We know that the greenback is a mirror image reflection of the faucet of liquidity and we will experience asset class deflation or dollar devaluation, as we have since the back of the post-bubble reflation effort.

  • Both could occur, I believe, but both cannot rally given the debt dependency, foreign holders of dollar denominated assets and embryonic secular trends of isolationism and nationalization.

  • That is likely why crude has rallied three of the last four weeks as the rising tide lifted most asset class boats.

  • Why isn't the dollar getting thwacked in kind? Perhaps the 'load' is shifting to foreign central banks, who are stepping up their dollar denominated purchases. Or maybe the dollar distraught became too "short-term palpable" and is edging along the path of maximum frustration.

  • Either way, I continue to believe that the greenback will be the big picture contra-indicator for equities.

Random Thoughts

  • Atlas Shrugged? Reaction to news is more important than news itself. That's why Friday's shrug of Illinois Tool Works (ITW), Black & Decker (BDK), and YRC Worldwide (YRCW) (economically sensitive issues which all guided lower) is worthy of a mention.

  • Oracle (today), Mother Morgan, Circuit City and General Mills all offer their state of the union this week.

  • As we wind down towards the holiday season, please know that I will be away from the flickering ticks next week. Balance is an elusive proposition and one that I've yet to completely master. 2006 has been a heckuva journey on a number of levels and I'm looking forward to some mindful relaxation. Make sure that you're taking the time to breathe, Minyans, as we'll be back in the saddle with a fury to tackle what promises to be a most interesting new year.

May peace be with you.


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