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Ollie's Follies


You gonna eat that?


Good morning and welcome back to the shifty shack. The Valentine Daze is in the rear-view and I sat with our friends for a talk overdue. We gathered at Ollie's, a quick cup of joe and debated the fate of our minxy plateau. The discussion was brief (we all had to go) but I'll share what was said in this quick quid pro quo.

Toddo: Thanks for swinging by guys--I know you've all got a lot going on.

Daisy: (looking a bit tossed after what must have been a long night): No worries, Toddo--there are alotta moving parts in the market right now and it never hurts to talk it through.

Toddo: Appreciated. I thought it would be helpful if we quickly vibed through the four primary metrics to see how many legs are currently supporting the equity table. This is an old but effective exercise that often helps provide perspective as we assess our risk assumptions.

Hoofy: I think it's safe to say that the fundamental leg is steady after seeing aggregate S&P earnings rise 20% year over year. While there were some flies in the ointment, the overall tone should stable the table.

Boo: (brushing the doughnut crumbs off his chin) I won't argue with the numbers, Hoofy, but I will offer some food for thought. For starters, current multiples are generally optimistic and reflect what is, in my view, a best case scenario (we're closer to levels historically associated with market tops than market bottoms). Further, as equities are a discounting mechanism, you should remember that news is always best near cycle highs. So even if earning's season was one big circle smirk--and it wasn't--it still wouldn't support blind ambition.

Snapper: What about the technicals? Didn't we mount some big levels last Friday?

Sammy: There was alotta focus on S&P 1196 and the bovine ability to push through sparked a spate of buy-side interest. All eyes now turn to the January highs (S&P 1216, DJIA 10,865) as the lines in the range bound sand. If Hoofy (and Stella) are gonna get their groove on, they'll have to overcome the lofty (S&P & DJIA) stochastics and pork lethargy (the piggies can't seem to pop through BKX 102). Away from the old school fray, the NDX--despite a gutty effort from the semis (+14% off the Jan low)--remains stuck below resistance (NDX 1550).

Hoofy: Psychology seems to have turned a bit, hasn't it? The mood in the Street is the mirror image of the January scrimmage.

Boo: Its the same ol', same 'ol--folks wanna believe in the upside and are quick to give the bulls the benefit of the doubt. I can talk about the decade low volatilities or the Joe DiMaggio style skew in Investor Intelligence but it's not causation. It does, however, narrow the margin for error and has the potential to exacerbate movement. January was a prime example of what happens when folks are leaning the wrong way. And that was a simple pimple in a much broader complacent complexion.

Daisy: (adjusting her pink sweater) What about the structural metric?

Sammy: This is the million dollar baby in the equation. The January mood swing had deflationary undertones--the dollar rallied nicely while liquidity dependent asset classes fell in concert. I could picture Elmer driving his gas guzzlin' Caddy and slightly lifting his foot off the peddle to gauge the response. Maybe he realized the dichotomy between legitimate economic growth and debt-induced largess--I'm not sure--but it sure seems like he gunned the February gas, doesn't it?

Snapper: So what happens if he adopts a slightly more dovish tone tomorrow? Are we off to the races (accommodation!) or does it tarnish his credibility (recovery?).

Sammy: Therein lies the crux of the issue and the key to the minxy vault.

I thanked the critters for their time and told them that I had to hop to the Tuesday shuffle. After I tossed a few finskis on the table (Ruby taught me to pay my own way), I put my coat on and turned to the fab five. "Listen guys, we all have a lot of pressure on us to perform but that doesn't mean we have to run full speed all the time. Pick your spots, remove emotion and understand that it's a long game. The goal isn't simply to win today, it's to ensure that we're around for the rest of the season."

Good luck today.


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