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Thursday Hop Scotch


Wait for your edge, Minyans...


Oh you're a hard one,
I know that you've got your reasons.
These things that are pleasing you,
Can hurt you somehow.

(Don Henley)

Recent vibes on the "whats, whys and ifs" of the Central Bank machination:

  • Reaching Different Conclusions with the Same Data

    By Bennet Sedacca

    We all know that the Fed is pumping money like crazy. We also know that Foreign Central Banks are buying risky assets like crazy. But it seems there is now quite the bull and bear argument going on as to whether this is good or bad for stocks. Some people say that liquidity is great as it forces the prices of assets up, which we need to do as a result of all the debt piled up. Others, like Lance earlier and my friend Marc Faber, say it is bad for dollar denominated assets. I wrote the other day that 'the elephant was in the room.' Now there are three.

    1. The Fed
    2. Foreign Central Banks and Foreign Institutions
    3. Private Equity Firms

    I feel like short-term (inside a year or two) the forces of money supply growth could keep a bid to stocks whether I like it or not. Longer-term the derivatives piling up will eventually be a mess. When? I humbly say I don't know. But given the liquidity and reasonably low rates, an argument can be made for a good 2007 as is typical of the 3rd years of Presidential terms. I expect the Fed to ease and the curve to dis-invert and eventually steepen.

  • "You wanna play tetherball?" Napoleon Dynamite
    By Todd Harrison

    Bennet made a good point with his previous Buzz. "We all see the liquidity pump and the debate now seems to be whether that's necessarily bearish." I think his assimilation was spot on and it warrants a deeper dive.

    As mentioned this morning, we spend countless hours debating the "whats, whys and ifs." At the end of the day (month, year), we're judged by the ultimate arbiter: Our P&L.

    Hoofy would correctly argue that it doesn't matter how we got here, it just matters that we did. Putting our differences aside, you can't argue with that.

    One of the things that jazzes me about the 'Ville is that we don't take things at face value. That, for every action, there is an equal and opposite reaction. When I started this company five years ago, I wanted to build a community where we could collectively learn how to make better financial decisions We've done that, in my view, but it carries with it a tremendous responsibility.

    We caught some moves and trends and secular stories in 2006 and missed others. It happens-there is no magic formula-and we ready to tie a bow around another year with our lessons in tow. To Bennet's point, I will offer this nugget: The mechanics of the swing are more important than the results of the at-bat.

    I don't know what inning we're in on this tide of rising liquidity. But I do know that making blind bets because everyone else does is a recipe for disaster.

    Manage your risk, respect your tells, do your work, remain patient and remember that capital preservation is the first step towards wealth accumulation.

    Follow those guides and we'll prosper on the journey rather than focus on the destination.

Random Thoughts

  • Watch those trannies as they tickle and toggle on the right shoulder of some defined dandruff.

  • Expect big-cap out-performance (vs. small- and mid-caps). The question, of course, is whether it's relative or absolute.

  • Mahmoud Ahmadinejad's opponents won a majority on Tehran 's City Council, delivering the first political setback to Iran's president since he won the office in June 2005. So ya know.

  • SunMicro $5.50 still seems like a decent downside stop for those looking for upside exposure.

  • Wait for your edge, Minyans, and remember that the ability not to trade is as important as trading ability.

  • And you know what else? It could be worse…

  • Keep half an eye on crude as it slicks a percent lower. That's pulling the drillers lower as the OSX sets her sights on CRB 200ish support. That's the 200-day and the right shoulder of the reverse (bullish) dandruff. As past resistance is future support, watch that zone for possible snappage.

Minyan Mailbags

  • Toddo,

    I know you are not high on the financials/brokers but doesn't the abundance of mergers and acquisitions really help the brokerage stocks? Investment banking seems to have a bright future and isn't that one of the main driving forces behind the brokers? Thanks, Minyan JDB

    Minyan John David Booty,

    Yes, M&A activity is a boon to this complex, particularly given the fact that trading revenue is such a volatile stream. Two thoughts to keep in mind. One, as the market is a leading indicator, we must ascertain how much of that move is baked into the (BKX) all-time high cake.

    Second, and at the root of my caution for the group, is that the risk is higher than what I believe the potential reward will be. As the highest weighting in the S&P, with an inverted yield curve, in a finance based economy, with $370 trillion in outstanding derivative obligations and with a shaky real estate (debt) backdrop, there's alotta things that can go wrong.

    That doesn't mean they will, natch, but it'll behoove Minyans to see both sides of the trade before slapping on sizable exposure.

    As always, just one man's humble opinion.

And finally, as other Minyans might be looking for the perfect holiday gift for that special someone, I wanted to share some feedback from a thankful Minyan who recently purchased one of my mother's masterpieces.

  • Carole –

    It's here and FABULOUS! Thank you, thank you, thank you! I've already shown it to my friend from Santa Fe. Her eyes are bulging! Thanks also for the careful packaging. I can't wait for Christmas Day as my wife is gonna love this!

    Minyan Jim

Have a great day.


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