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System Shock

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May peace be with you!

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When they come to take you down
When they bring that wagon round
When they come to call on you
And drag your poor body down


(Grateful Dead)


The afternoon daze is finding its way as the critters all search for an angle to play. While this has clearly been one of the more frustrating sessions in recent memory, the good news is that the I.T. folks have identified the worm that is chewing through my back end. That helps explain the system strain but it doesn't ease the angst or pain. So with that said--and with abacas in hand--I'll try my best to help our quest.

The tenor of the tape would make Pavarotti blush as the breadth has been nothing short of fugly. The internals, along with the financials, were the leading tell throughout the 2003 rally and a coincident indicator of injected liquidity. Over the past month, we've watched virtually every asset class (and most global equity indices) listen to chin music as the pffft! slowly seemed out of the reflation trade. The bovine will opine that corrections must be believable to serve their purpose while the ursine will argue that we're simply staring at last year's mirror image. They're both conceptually correct but only one will likely reap the rewards and find profitably find their way through the fray.

Is this Carrie and Fanny plotting their revenge on an unsuspecting public? It's a matter of time, in my most humble opinion, but the intertwined global financial system has clearly started to show cracks in the foundation. Emerging markets (pure liquidity play) are melty, the metals (which should be rallying on inflation concerns) are heavy and bonds have been a house of pain (today's bounce notwithstanding). Toss in the increasingly disturbing geopolitical arena and the uncertainty of the election and, well, here we are.

Be that as it may--and it may be a lot--we must constantly remind ourselves that the Minx prefers to travel the path of maximum frustration. We've discussed the outsized level of negative gamma in the marketplace and if history is a guide, that'll likely manifest in the next two sessions. That increases the risk both ways as dealers will be forced to make sales in the hole or reach through the offer to cover their deltas. Gameable? Not directionally, although it is something that demands our attention as we find our collective way.

I'm absolutely scramblin' as we try to bait this worm so lemme hop and continue my efforts. There was a time that something like this would be grounds for flying phones and verbal rants but I've learned the difference between annoyance and loss. It could be worse--a lot worse--so I'm gonna focus on the solution rather than add to the problem. For if we've learned anything, it's that there are plenty of things in this world that are more deserving of our emotional attention.

Fare ye well into the bell.


R.P.
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