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Earnings and Sense




Good morning and welcome back to the tick and tack. Yesterday's riot was creepy and quiet as the critters prepared for today's earnings diet. "I'll take it all day whenever I can," said Hoofy when he spoke to the clan, "As I've said once before and I'll say it again, my big picture scheme is progressing as planned." Will the passing of Elmer release the green monster or can Boo and his friends expose the imposter? Saddle up for the ride and shake off those jitters for it's time to get down in the city of critters!

As someone who has had a big picture bearish bent since early 2000, I've been both right and wrong over the past few years. Granted, you're only as good as your last trade (how true it is) but I've learned that there are lessons on both sides of a P&L. And while 2004 is still a mixed bag and up for grabs, it is the tutorial of 2003 that serves as a constant reminder that nobody is smarter than the market. I've been taught, as many of you have, a dynamic lesson in the virtues of easy money and a coordinated agenda. Ironically, it is that very psychology that has now permeated the mindset of the masses and created the potential imbalance.

The metrics that I rely upon continue to scream for attention and I have little doubt that they'll prove telling in hindsight. In the meantime, folks have become emboldened by an unrealistic basis of bubble comparison. I continually remind myself that nutty can get nuttier and crazy is on the bus but, as evidenced by the price action of an increasingly popular set of stocks, investors have subscribed to yet another new paradigm. Granted, a host of fully invested bulls share a lucid thought process but alotta decisions are being based on the laws of inertia and the principles of hope.

The response from Matador City is that stocks are discounting a helluva rescue mission by the Fed and to be fair, there is a probability that Elmer pulls it off. What we've gotta ascertain is the availability of further liquidity and the ability of those funds to quite literally buy more time. Further, there is a delicate balance between upside momentum and an intoxicating wave of empty promises. It's virtually impossible to identify that fulcrum but it's equally myopic to pretend that it doesn't exist.

The rate debate is at the epicenter of the matrix and Elmer's imminent cameo has put it firmly in front of us. After the double dose of economic verbose pounded fixed income (which, in turn, spiked rates and punished the tape), we've now entered the twilight zone between perception and reality (denial and migration). We all "feel" the inflationary forces in play--they're evident in almost every walk of life--but the powers that be insist that it's not so. In fact, they've gone so far as to alter the composition of the very gauges that measure prices at the producer level.

It seems a bit "pat" that the easy money (carry) trade would reverse on a dime--familiarity breeds repetition--but we gotta remember that when the music stops, we'll be staring at the same date we brought to the dance. I honestly don't know how Elmer's grandstand will be interpreted (speed bump or road block) but we must be careful when extrapolating a singular event to a much broader landscape. In other words, regardless of your posture or whether you've got paws or hoofs, understand that the next few sessions will be crowded and adjust your style accordingly.

We power up the Tuesday muck to find Europe green with envy (FTSE at a new '04 high), the dollar firm (DXY north of 90), heavy metal (silver down 3%) and baited breadth. I've been tetherballing around my right lobe as to the near-term direction but I've yet to secure total clarity (if there is such thing). As such, I'm assimilating the potential outcomes, respecting both sides of the equation and will humbly share my stream of consciousness as it evolves. I will simply remind you that it's not necessary to play every trade, it's only necessary to have a high win of percentages on the trades we make.

Good luck today.


No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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