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Bullets over Broadway


Has the greenback become a proxy of isolationism?


Stream of consciousness...

It's my belief that time will be the ultimate arbiter of our fabled Fed chief's legacy but it may take years before Elmer's Zoo unravels (see Franklin Raines). As we migrate from conundrums to credibility (or lack thereof), the echo bubble could continue as investors weigh our collective crossroads. It's a delicate dance as we jockey between the reflation efforts and the undesirable alternatives (deflation). Please continue to watch the dollar in this regard as further devaluation may be the only equity salvation.

Speaking of which...

The dollar is the lead story this morning (DXY -1%) after the Bank of Korea said that it plans to diversify its reserves. The central bank, which has over $200 billion in reserves, said that it will increase investments in assets denominated currencies such as the Aussie and Canadian dollars. The move by the world's fourth largest holder of currency reserves has sparked concern that other central banks will follow suit. Gold and silver are both on their early horse as the yellow metal jumps a finski and white lightning pops a deuce.

Did somebody say higher prices?

Wednesday's CPI report will be closely watched as we find out if input costs are being passed through to the consumer. While an uptick may stoke the stagflation fires, a benign report would likely stir fundamental deceleration concerns (margin pressures). That may or may not "matter" to the market but we gotta fit the pieces into the puzzle as they arrive. And please keep in mind that alotta traders are away this week and thin markets tend to exacerbate volatility.

Joel, please step off the coiled spring...

The quote of the weekend was featured on the front of Barron's Market Week section. "The decline in bond yields in the face of rising short rates is no conundrum. Investors are desperate for income in the low-return post bubble world." This is precisely the "compression" that Professor Succo has been discussing for over a year. As alternative investment options mitigate, traders are pressing their bets and increasing their size with hopes that the former offsets that latter. The onus is on us to adapt to the environment in more ways than one.

Sticking with the Barron's bent...

There was an excellent interview this week with Stratfor chief George Friedman. He opined that Iraq will slowly drift from our radar as U.S. troop casualties drop (as they move from the "hot" areas), Iran's nuclear proliferation isn't as troublesome as most believe (they have a "major stake" in a Shiite-dominated Iraq), North Korea is "posturing" for a peace treaty and diplomatic relations, Vladimir Putin's Russia may be a growing problem for the West and, perhaps most interesting, he offers that China could see "significant deceleration" and may be on the "cusp of a meltdown."

Shifting stateside...

The action under the hood last week was a lot choppier than the Sammy slither in the broader averages. Of particular note was the lethargy in the financials that we recently flagged. With the BKX now below par (100), the piggies are in the poke as we fire up for a fresh four-session span. Do they remain a lead sector "tell" for the broader market or is the rotation migration an extended process that will evolve over the years? My sense is that it's a bit of both and remain steadfast in my belief that energy will eventually overtake the financials as top dawg in the S&P.

Along those lines...

The tech sector and financials account for 35% of the overall S&P market value. While Hoofy is secretly psyched that we're 2% from recent highs (given the back-up in yields), he is ready to hear a chorus of "non-confirmation" if these two horses don't jockey. S&P 1163 is uber-support while S&P 1218 remains an area of acne should the bovine opine that everything is fine. As the monolithic asset dance sorts it out, expect to see sector rotation in vogue and pay particular attention to pharma, energy, metal equities and basic materials.

Finally, and please stop reading if you only want financial vibes...

I flew down to Rubyville on Friday to surprise my grandmother and it was one of the best decisions I ever made. As my mother walked her into the restaurant in Delray Beach, I was standing behind the host stand ready to greet her. "Table for two?" I inquired, secretly hoping that she wasn't too startled. The look on her face was priceless as we settled in for a guilt-free margarita of her choice. During dinner, she reminded me that I never delivered on my long-promised casino retreat. Thirty minutes and five phone calls later, my passport was on its way to Florida and Dorothy had a weekend date with her favorite grandson.

Without breaching any confidence (what happens at the Atlantis stays at the Atlantis), we arrived in the Bahamas Saturday afternoon and stepped into a stretch limo that would have made Ruby proud. A few hours and a fantastic meal later, we were ready to assault the casino. Despite the lack of $5 tables--which was an issue until I explained that they simply didn't exist anymore--Dorothy stepped up and played like a pro. Suffice to say that the image of her doubling down on $100 bets--and winning--will forever remain one of my most precious memories. And her persistent squirreling of our chips actually paid for the trip and allowed us to leave with smiles on our faces and some jingle in our jeans.

I'll be the first to tell you that I didn't want to miss Friday's expiration and almost didn't take this trip. There would be other opportunities, I thought, and plenty of time for us to share in the future. But if we're to truly "work to live" rather than "live to work," we must practice what we preach and take the initiative whenever possible. While a spur-of-the-moment retreat may be unrealistic for many Minyans, it only takes a moment to pick up the phone and call someone you love. When the wild ride that we call life finally runs its course, I'm pretty sure that you'll be glad you did.

Good luck today.


No positions in stocks mentioned.
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