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Hats and Rabbits

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There is a LOT going on today...

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Good morning and welcome back to the full plate. In what can only be described as an impromptu Succofest, the good professor and I met for a late Monday schnitzel. As we nibbled on rock shrimp and noshed on spicy salmon, we talked tape, life and the perspective necessary to balance the two. The dichotomy between reality and illusion seems to crystalize during these weekly greets and I, for one, thought the timing was serendipitous.

For purposes of our profession, price remains the ultimate arbiter of dissenting perspectives. What we see, hear and experience daily somehow finds purpose when defined by the flickering ticks. It takes a certain skill to properly digest the dynamic but understand that others won't see it the same way. It requires an evolving discipline to discern an advantageous risk/reward in an ever-changing landscape . And we must share a humility to know that we're pawns in the big picture and dwarfed by the power and money in play.

We've been meeting like this for a few years and constantly compare notes. For a long time, we discussed the disconnect at Fannie Mae (FNM) and the maze of derivatives. We've spoken of the dangers of debt and the inevitable impact on the dollar. Elmer and the Federal Reserve have been familiar topics as we wade through the greatest financial experiment of all-time. And yes, we're spoken about the role of the government, potential intervention and the unavoidable isolationism that awaits us.

At times, the mechanism seems overwhelming as the agendas and mandates collide. Traditional metrics have diluted as a function of the compression that has changed the game while raising the ante. As is often the case, skepticism seems misplaced while the screens are green regardless of root cause or inevitable consequence. We live in a society where immediate gratification is accepted--even embraced--if the exit strategy allows for a seamless escape. The dangerous dilemma is that most everyone who "sees" the true conundrum naturally assumes that they'll escape unscathed.

So what are the warnings? For the last few years, Brian Reynolds of MS Howells & Co. has schooled Minyans on the equity crutch that was the corporate bond market. In particular, and while the credit markets were giving Hoofy the wink, he noted potential trouble spots in Fannie Mae (FNM) and General Motors (GM). As Franklin's former flier steadily drips lower, the latter matter has been splashed all over the mainstream press. Just this morning, General Electric (GE) pulled support for the auto giant and the spread on its euro-denominated debt widened substantially.

As the structural leg has been the steady support for the equity table, we must assimilate these inputs accordingly. The other metrics seem to be wobbly as well. The fundamentals, already decelerating, were dealt another blow last night when high flying Electronic Arts (ERTS) messed the bed. The technicals have broken numerous levels in the S&P, DJIA, semis and banks as they desperately cling to the NDX 200-day. And psychology, the wildcard into quarter-end, may not be as blindly bullish as it was when we "broke out" to new highs but the dip shtick remains good and thick.

The PPI arrived in-line (.4%, .1%) and that was met with a sigh of relief. In other overnight news, a number of sell-side firms pushed the semi space, Wyeth (WYE) raised numbers (when's the last time we saw good news in pharma?), KB Homes (KBH) and Lennar (LEN) added fuel to the homie fire and the macro shuffle is in full force (as gold tests support at $428 and silver does the same at $7).

As we anxiously await Elmer's Zoo, please keep an eye on the internals (been horrid), note the stochastics (oversold), monitor this General Motors (GM) (yes, it's that important), key on the rate-sensitive names and understand that there are alotta anxious fund managers out there dreading their first quarter letter. That emotion has a tendency to manifest and exacerbate both volatility and rotations (energy?). Play smart, remain disciplined and don't trade scared. In a few short days, we'll be kicking back with a cold brew and some college hoops.

Good luck today.



R.P.
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