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Twenty Questions


Now THAT is a crowded keppe!


Will the banks and semis have to lead any attempt at upside acne?

Absolutely. These two sectors are the all-stars in their respective complexes and remain essential elements to any market jig. In addition to the 22% weighting of the S&P, the financials serve as the single best sentiment proxy for the rate debate, (latent) derivative concerns and potential cracks in the Minxy foundation. While Boo is keying on a potential churning under recent support (BKX 98), Hoofy is focused on constructive stochastics and the looming 200-day support (BKX 94.5). On the other side of the fence, the semis are the foremost ingredient in the tech food chain and will offer clues to potential inventory build. The SOX, which is down 6.5% on the year, is currently testing the 200-day moving average (SOX 476) for the third time.

Does a bullish spark necessarily mean that we're playing with ursine fire?

There are several reasons to be bullish here including the repeated test of resistance, tight corporate bond spreads, better than expected earnings and the continued (but invisible) electoral agenda. Any or all of these elements could ignite a rally and chase the bears who have been leaning against S&P 1150/60 (which is STILL a 50% retracement of the entire bear melt). With that said, the litany of flashing red lights including (but not limited to) widespread anticipation of higher prices, utter complacency from a volatility standpoint, continued geopolitical risks, record insider sales, a forecasted deceleration of earnings (from a lofty perch) and supply/demand headwinds all set the stage for a trap door at any time. That is why the definition of risk, whenever possible, is so very important as we trade forward through the muck.

Can the carry trade save the day?

This is the gazillion dollar question that holds the key to our collective fortune. We know the dilio on the particulars--investors borrow cheap money and leveraged it to buy (pick an asset). Elmer and his chubby cheeked cronies (swollen from all the jawboning) have pulled every string imaginable to reflate the economy and (quite literally) buy time. We are clearly in the late innings (my opinion) but the home team is trying to stage a late rally. If the perception of higher rates permeates, those in the crowded carry trade will get carried out and the unwind could be viciously swift.

Will inflation hide forever?

That depends on which inflation you're referring to. There's the Bureau of Labor Statistic's definition of inflation that is tamer than a shrew. The PPI started to show signs of this beast but the "corrupt components" were swiftly banished to cyberspace. Further, there is nary a day that a Fed-head (or Snowman) doesn't hand hold and assure us that prices are constrained. Then, of course, there's everyday life and anyone who has needed gas, shopped for clothes, bought (or rented) a home or, well, lived in reality will tell you that inflation isn't a potential issue, it's a RIGHT NOW issue. I will allow that a stronger dollar, on the margin, decreases "imported" inflation (by making foreign goods cheaper) but a continued rally in the greenback is needed to perpetuate that notion (and I don't think that's gonna happen).

Do diets work?

Sometimes. But a more realistic agenda is a "lifestyle shift" towards healthier foods and consistent exercise. The word diet is too restrictive and often leads to caloric resentment. Moderation, as in everything else, is the key to shedding unwanted jiggles into the summer months (note: I am talking to myself).

Did the metals get too mainstream?

Yes. As with anything else, success breeds popularity and the metals (along with commodities in general) got too crowded on the long side. The single most important aspect in this (or any other) investment arena is the definition of a time frame (or price parameter). I dipped my wick into the silver shtick last week and have been "trading around" a position with the intent on maintaining an elongated horizon. With that said, they continue to trade as a crowded long and it "feels" as if there may be an opportunity to scale into cheaper levels. As always, I share this with educational intents and it is not offered as advice.

Why was globalization a bullish buzzword during rallies but insignificant as a potential downside catalyst?

I'm not sure but I sense it has something to do with rationalization. There is no debating that we're operating in a global economy and, at some level, markets are intertwined. That is why China and India are so very important and we must continue to educate ourselves regardless of where our exposure lies. Global asset classes are akin to a high stakes game of dominos and (two-sided) risks on the other side of the world will eventually find their way into your portfolio.

Why does it take something bad to make us realize we've got it good?

Because adversity builds character? Because we're conditioned to fixate on what we don't have? Because we're so focused on the destination that we forget to enjoy the journey? I first learned this lesson when I lost a young friend a while back and questioned the basic tenets of my existence. And I've unfortunately been reminded throughout the years that life is a fragile and precious gift. One would think that 9/11 would have left an indelible imprint but petty differences and selfish acts continue to litter society (and Wall Street).

Will energy come full circle and be the largest weighting in the S&P?

I believe so. If you subscribe to the notion that hard assets and tangible goods will eventually reestablish themselves, the relative weighting (and performance) of energy issues shouldn't be a shocker. I happen to believe that the REAL recovery, when it happens, will be led by manufacturing based economies with a competitive advantage via cheap labor (China and India). And that's one of the reasons that I fear for our service based system and it's subjective valuations.

Do corporate spreads really need to widen before an equity melt?

They typically do but it's not guaranteed (what is?). Professor Reynolds has written extensively on this topic and I urge all Minyans to read his educational content both in the archives and on a daily basis.

What are the nearest term technical levels to monitor?

SOX 474 (200-day), 458 (March lows) and 490-500 (resistance), BKX 94.5 (200-day) and 98 (breakdown resistance), INDU 10423 (50-day), NASDAQ COMP 2080 (inverse dandruff), NDX 1455 (50-day), 1440 (recent support) and 1406 (200-day), CYC 700, 713 (multiyear high) and 682 (50-day), XBD 133 (double '04 bottom), Gold 393 (200-day) and BTK right here ('04 high).

Is the current rate debate grist for the wall of worry?

Only if the market rallies! We identified the near-term hedgie "press" last Tuesday when Elmer rattled the cage and the resulting Snapper was a combination of some squeezage and mechanical buying. We often reference Flow's Diner for a read on the uber-near term "leanings" but the large (and more disturbing) backdrop is decidedly skewed to Matador City (massive optimism). With sentiment surveys tickling the top of the charts, we must remain cognizant of an ever-present trap door potential.

Did the Raiders draft the right player in Robert Gallery?

It's hard to argue with a 6'7" 323 lb mountain--at least to his face--and Al Davis will look like a stud if the offensive tackle fulfills his potential. While comparisons are already being made to Art Shell, playing in the Raider Nation will be an adjustment for the young man out of Masonville, Iowa (population 129). I would have liked to see my beloved silver and black address their backfield needs but with the absence of Maurice Clarrett, there weren't worthy candidates (unless they traded the #2 pick). I still feel that Larry Fitzgerald was the best player in the draft but there's a reason that I'm sitting in Minyanville rather than Oakland.

Is this the beginning of the low volatility drift I referred to years ago in "The Long Hard Road?"

No. If that scenario plays out, there will be a continual weeding out of both the bulls and bears before settling in for a multiyear drift (at much lower levels). I clearly failed to anticipate the voracity of last year's spirited sprint but that's the Minxy agenda--punish the bulls, scalp the bears, drown more bulls, hurt more'll continue until the teletubbies are gone and there is apathy regarding the financial markets. It may or may not happen--and from where I don't know--but that's my honest opinion.

Does my big picture bearish bent get in the way of making money?

I would be lying if I said it didn't. As a trader, I must focus on the journey rather than the destination. As a human being my furry concerns have clearly cost me opportunities on the long side. It typically manifests at inflection points when the rubber meets the road and the Minx eyes her next leg (or Daisy's). Trading is a never-ending education--and quite humbling sometimes--but an opinion should never get in the way of making money.

What is a Minyan Ambassador?

It is someone who believes in the Minyan cause and wants to earn while they learn. We've set up a program that will pay out 20% of passport and license revenues that are referred to us through ye faithful. For more information on how to join our family--and it's open to everyone--please contact Mr. Collins.

What other financial writers do I read?

Offering that I read the Minyanville professors would secure the "master of the obvious" label but there is a reason that each of our writers is in our community. In addition to that talented squad, I don't miss Fleck's Rap, Michael Santoli's weekly Barron's muse, Herb Greenberg's insightful commentary on Marketwatch, Jeff DeGraff's technical take from Lehman and Natexis Bleichroeder's John "if it ain't" Roque (don't fix it).

Will excess breed excess?

When I opine that multiples will eventually migrate to single digit midgets, I'm well aware of the scrunched eyebrows around the Street. Still, I don't believe that the world's biggest financial bubble will be "three and out." There's only one solution, in my most humble opinion, and that's TIME. If we took our lumpy financial medicine, odds are that the real recovery would have come sooner. With the unprecedented stimuli, however, we've turned a bad situation worse. What's the opposite of love? Apathy. What's the opposite of a bubble? Depression. And please, Minyans, don't shoot the messenger.

What's the right level of exposure at these levels?

There is NO blanket response to this question as each Minyan has unique needs. That's why our mission is to teach folks how to fish (rather than giving them a fish) and provide the information needed to make better choices for themselves. The basic tenets of financial management--diversity, prudence, humility--all factor into the decision making process but the allocation process is dependent on many factors (including age, risk tolerance and time horizon).

Do the Yankees have the chemistry to make the playoffs?

I think that they'll gel, in time, but what concerns me about the Bronx Bombers is their pitching staff. You can't simply replace Clemens and Pettitte and expect there to be a seamless transition. Still, and while I fear that this could be Boston's year, I don't think the Orioles pose a challenge for the wild card. If there's a tight race in another division, however, it could be a long winter at the Steinbrenner residence.

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