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The Glass Menagerie


Watch those macro indicators, Minyans -- the dollar and crude continue to influence equities!


Good morning and welcome back to the art of interpretation. The psychology session continues today as traders attempt to assign rhyme to the reason of war. The bulls have been drinking from a half full glass with hopes of a quick and (relatively) painless conclusion to the conflict. With each lingering day, however, a sober reality is setting in and the burnt bears are thirsty for more gore. Has Hoofy jumped the proverbial gun and underestimated the task at hand or is he simply retrenching before furthering his upside assault? Settle in and settle down, Minyans, the battle of perception is about to begin!

One week ago today, the Minx began a fantastic journey that absolutely boggles the mind. As emboldened traders watched the news with their eyes and took stock with their hands, the market scaled the wall of war to dizzying heights. The logic was simple: The conflict would be quick and as the drag on the economy lifted, business conditions would improve. While those hopes remain, a new element has entered the collective psychology. What if it isn't so easy? What if something does go wrong? What is the true cost of war?

The Washington Post ran an article last night that planted those very seeds of thought. While the concerns they raised may never come to pass, we need to monitor the potential impact on the conventional wisdom. In other words, the market screamed higher last week as traders perceived a "best case scenario." As the reality of a (relatively) prolonged affair sinks in, how much of that euphoric reflex will be removed. Moreover, what if the unthinkable happens? What if something actually goes wrong?

Let me be crystal clear -- I want nothing more than our troops to safely come home to their families and this conflict to be wrapped up as soon as possible. As a risk manager, however, I need to assimilate ALL potential outcomes and juxtapose those finding against our trading metrics. We need to factor in the current psychology (hopeful), the field position (extended), the fundamentals (dreadful) and the structural (quarter-end, potential asset allocation, macro indicators). When I take an honest assessment of the landscape, my eyebrow is raised and my right hand isn't far behind.

With that said, identifying an appropriate strategy is the most critical element of the entire process. I am acutely aware of the potential for a quarter-end "mark up" by the funds, I understand that asset alligators are sniffing around and, perhaps most important, we're always one news headline away from a vicious rally. That, in a nutshell, is why I've opted for my current approach. I own a bunch of May out-of-the-money puts (big caps) and if I get bullish inclinations during the session, I'll rent some exposure for the day.

I understand that many Minyans aren't afforded the opportunity to operate in such a manner and that's entirely alright. Minyanville isn't about advice, it's about sharing. And if our process adds value to yours, then we've surely done our jobs. Our goal remains one of consistency, longevity and capital preservation during the day and perspective, balance and happiness at night. One step at a time, my friends, as we find our way to the other side.

Good luck today.
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