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Minyan Mailbag: Michael Santoli


Too bad about those Yanks Michael!


Minyanville is proud to offer the insights of Barron's Senior Editor and friend of Minyanville, Michael Santoli.

I offer this as part of my constant effort to widen out the picture and try to see all sides (as a wise stubbly guy I know often counsels in his writing). Acknowledging the risk of scooping myself before this weekend (nasty image, I know) here are a few stray thoughts:

I'm thinking a lot about August, and not just because the 80-degree heat has meant a welcome return to halter top season.

Here are some basics about the August bottom in the market, and the current state of things.

8-6: A Friday, new year low set for the S&P, 1063. Down 7% from the high of six weeks earlier, VXO up 48%.

8-9: Quiet, nervous trading, S&P inches to 1065

8-10: A better rally, S&P up to 1079
Then came two days of selling First the S&P closes at 1075, then next day sells off for a re-test, closing again at 1063. On 8-13, a week after the first low, we get a new intraday low 1060. The Monday after that, the real rebound was kicked off, and within a month the S&P was up 6% in a straight line. The VXO fell right back to the level where it was at the June high (13.5-ish).

Okay, to the present.

4-15: A Friday, new year low for the S&P, 1142. Down 6.7% from the high of five weeks earlier, VXO up 43%.

4-18: Quiet, nervous trading, index adds a few to finish at 1145.

4-19: A slightly better rally, S&P at 1152.

I recognize that these parallels guarantee nothing, but should a pullback to/through the Friday lows followed by the 'real' bounce be all that surprising if it were to happen.

A few words from a sharp trader / writer / Web entrepreneur / philanthropist:

"As the technicals are officially 'broken' and the fundamentals are decelerating, the Matador City crowd is betting that the nervous (albeit hopeful) psychology - coupled with Elmer's helping hand - can somehow turn the tape. The risk to their position is that the stagflation chatter (old hat to many Minyans) is an embryonic thought for most of the world. The writing is on the wall of worry - inflation (oil), sluggish growth (sans stimuli), employment (jobs data) - but if that scribble dribbles into the mainstream media, it'll be deja Boo all over again. ....And while the field position is clearly more 'heelsy' now, it's worth noting that the raucous crowd hasn't greeted the bellwethers well of late. That can certainly change (watch crude!) but we must recognize that the path of least resistance is to the downside."

That was from a pre-opening piece on Aug. 9, 2004.

Now, you know me enough to realize I'd never go back with the benefit of hindsight and pluck out anything someone wrote in order to embarrass or poke fun. I looked back at my column from that week and it was one of those "it's almost stretched enough for a bounce but not quite" wishy-washy affairs. In my business I don't need to be right as much as be interesting, which is hard but a good deal easier than calling the market correctly. I'm just ratcheting back to try and recapture that moment.

As I look at things today, of course, there are differences that may be quite important: the corporate debt market's more wobbly now (spreads similar, but have risen much more quickly now versus August, convert market in pain); the Fed's that much less easy; the bull's another six months older; the VXO is lower, on an absolute basis; we're closer to the deceleration tipping point.

One thing that makes me doubt the history rerun is a nagging thought: Any monkey who can type could've performed the above "analysis" and therefore it can't be a unique perspective.
I have no answers, but I thought the exercise was worthwhile, just for my own benefit.

Talk soon -


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