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Cliff Hangers

By

From our family to yours, have a healthy and safe holiday season!

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So as sure as the sun will shine
I'm gonna get my share now of what's mine
And then the harder they come
The harder they'll fall, one and all



(Jimmy Cliff)


Good morning and welcome back to the icy crack. The time has arrived for '04's final scribe as we sit down to taste, to think and to vibe. The Minx is juiced up as we ready to Hump and the Matador crowd is pleasantly plump. "We turned on a dime like a reason to rhyme," he said as he fed on the holiday climb, "this is my time in the heat of my prime and to not take the bait would be almost a crime!" Is it really that easy, this rally so queasy? Or is this whole shtick a little bit sleazy? You better sit up for the minxy new thrill as we take one last walk through the heart of the 'Ville!

A few good Minyans joined hands in the big city last night as we readied for Festivus '04. It was a small but intimate gathering and the nucleus of the team took time to dream. We spoke of the past, looked into each other's eyes mindful of the present and then smiled as we looked forward. There was a quiet satisfaction among us, grounded with humility and conscious that there are powerful forces in play. I share this as you are part of the collective communication. Together we're vulnerable, united we gain leverage. Thus the network.

The Fannie Mae (FNM:NYSE) news broke as we were sitting in Chez Harrison and it was only fitting. Not that I wish bad upon anyone--I've been critical of Franklin Raines for years but not for personal reasons. My beef with him is that he wasn't playing with the same rules as everyone else and I saw--and continue to see--a huge disconnect between perception and reality. I'm still in the minority with this opinion (note the firm Fannie debt), but I contend that this situation encapsulates the market as a whole.

I will allow that the action is fantastic and there remains a part of me that can see further traction (watch Google (GOOG:NASD)). The scary serendipity is that the Fannie fray got loud just as the volatilities officially crashed. Every trading move can be characterized in three phases: denial, migration and panic. Sentiment is no different although it is subjective to perception. But when a vehicle melts 16% to cap off an 80% decline in three years, it reeks of capitulation.

Yesterday's action was also symbolic in that supply felt unmotivated and forced. There is no doubt that higher prices benefit the animal spirits and reactive rationalization is self-fulfilling. Mainstream media screamed of three year highs and portfolio managers are all too aware of their relative performance. Take me at my word, there are a lot of egos involved. Not just for pride but for survival and as we wade through the weed out. And fear is a tremendous motivator.

As this will be my last column of 2004, I will ask that you balance your emotions if you're pushing to the final flag. The very first lesson we learned in Trading 101 is the risk/reward dynamic. You can play seven ways 'till Sunday but be smart, stay disciplined and don't think about what could have been. The world is a complicated place right now and our focus should be on perseverance, patience and perspective. And above all else, and I remind myself, the purpose of the journey is the journey itself.

Have a healthy, safe and peaceful holiday season and will see you recharged, refreshed and ready for an exciting year ahead!

R.P.

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