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Monday Morning Quarterback


Who is making money in this equation?


Good morning and welcome back to the flickering pack. A new week is here and we're ready to roll as Minyans prepare for a really big show. Last week was a barn burner as the front end was giddy with anxious anticipation, the Hump was all about the Boom Boom room and the final fray was awash in a crimson tide. It was the best of times, it was the worst of times and now, it's time to reboot our scoot and figure out which way this fray is gonna sway. Hang on to your hats, Minyans, and let's chew through the jitters in the City of Critters.

Ticking tocks and dollar clocks...

We've been talking about the greenback for a mighty long time and it finally seems to be edging into the collective consciousness. While we noodled this poodle in Ojai, there are alotta folks out there who haven't connected the dots regarding what devaluation means to the average American. We touched on it a bit more last week, including a special "5 Things You Need to Know," and we'll continue to discuss it for as long as it's relevant. And judging from the writing on the wall, it may very well be relevant for quite some time.

Professors Succo, Reamer, Greenberg and I spent Friday morning on the horn discussing the disconnect between perception and reality. While most folks only look at currency levels when they travel abroad, a more disturbing dichotomy is taking hold under our very feet. It's called "debasement" and it has implications for the reddest of the red states and the truest of the blue. There are some who argue that, as long as we view investments as "apples to apples," the dollar discussion need not apply. Au Contraire, Mon Frere, this is a dilemma that warrants a deeper dive.

I'm not going to spend all morning dissecting this insect--we'll continue to walk through this discussion each and every day--but I'll leave you with some dew to chew on. As we continue to monitor the "asset class deflation vs. dollar devaluation," remind yourself that, since 2002, the S&P is up 14% while the dollar is off 30%. Who is making money in this equation? If your performance is tied to the S&P and your basis of currency is the greenback--and you didn't raise your hand--you'd be correct.

I know you are, but what am I?

So, should we stock up on guns and butter and call it a day? No, although I've always had a weakness for a good stick of margarine. The simple truth is that our performance is measured in dollars and that will remain the yardstick for the time being. I'm not as convinced that it will remain the global yardstick-- the mesure, Maßstock, áùŽÚ, criterio,ƒ„[ƒhŽÚ or maatstaf--but that's a discussion for another day. Suffice to say that if 35% of Americans approve of our administration, can you imagine how the rest of the world must feel?

Alas, I digress, and I do so as I bleed red, white and blue. I sometimes get asked why I delve into the political dabble and the answer is two-fold. First, as an American, it's not only my right to question my president, it's my responsibility. Second, as psychology is one of our four primary metrics used to decipher the marketplace, we must remember that when the President is in trouble, the market typically isn't far behind. Take me at my word, there is nobody out there who wants a peaceful transition to the next administration or a safer world to raise our kids more than I do. But given the tough talk from Iran and the continued tension in Iraq, I can't help feeling a little isolated from the rest of the world.

That smacks of irony, I know, as we've never been more dependent on foreign capital. Be that as it may--and it may be an issue as we come to grips with the growing trend of nationalization--we power up this morning's pup to find a bloodbath in commodity land. Gold is off $24 smackers, silver is down a buff 8%, crude is 3% lower and copper is shouldering its biggest loss since October 2004. We asked a curious question last week--whether the dollar was forming a (bullish) reverse head & shoulder pattern--and opined that yes, it could happen and, if it did, the metals would shoulder additional supply.

If the script stays true to the current direction, a greenback rally (currently up 60 bips) would also bode well for our pal Boo.

Odds and Ends

  • Boom Boom Bernanke will be speaking tomorrow night at an Atlanta Fed conference on hedge funds. There's no word yet on whether Maria received her invite.
  • Tomorrow will also be a busy data day with the PPI, Home Depot, Wal-Mart, Applied Materials and Hewlett all stepping out from behind the curtain.
  • As discussed in my Friday vibes, I nibbled on some (very) defined risk front-month calls in United Healthcare as a pure trade. Why? When the stock opened down 60ish cents on headline news, it felt washed out to these old eyes. I slapped on some trailing stops and I'll continue to trade it that way.
  • For all you good day, SunMicro players, they're holding their JavaOne conference today.
  • If you missed Friday's Buzz, please read this post from Professor John Succo.
  • I covered my "cutesy" shorts in the metal equities Friday as the XAU was off 7% in two short days. Premature evacuation? It sure looks that way but, again, I wanna look to BUY (not sell) energy and metals on downside disconnects.
  • Finally--and not to be forgotten--only two weeks remain for the Minyans in the Mountains early bird special. John Succo said it best last week--"these will be tough markets and risk control will be essential to living through them." MIM3 is all about preparing ourselves for the future financial markets and surrounding ourselves with the very best human capital on the street. If you're on the fence, please consider this an official "push." I am quite certain that it will prove to be a valuable use of your time.

Good luck today and I'll see you on the Buzz.


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