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Bad Things and Good People


With the markets listening to chin music--and tensions rising in kind--the intuitive question on the lips of the critters is "what now?"


If I could through myself, set your spirit free
I'd lead your heart away
See you break, break away
Into the light and to the day


Good morning and welcome back to the flickering flack. The ursine arrived in the 'Ville yesterday and readied the world for what they had to say. On the heels of the previous smackage in Saudi Arabia, Dubai and India--not to mention the recent drubbing in Europe and Japan--Boo's crew was alive and kickin' as they searched for some serious respect. Are the big picture blues gonna hang out and stay or will Hoofy be able to wish them away? It's tricky, it's Tuesday, get ready to thrill as we step on the gas for a drive through the 'Ville!

The mainstream media, after declaring an "all clear" a few short weeks ago, has soured considerably as the indices slip and slide down this treacherous slope. Indeed, the notion of a Hindenburg size disaster woulda been laughed off the Street if the screens were green but it's gotten some press in the latest red mess. With the markets listening to chin music--and tensions rising in kind--the intuitive question on the lips of the critters is "what now?" The market has always been a tug-o-war between fear and greed and the former has seemingly gained considerable ground on the latter.

Old school Minyans know that we've chronicled the caveats of this tape for a mighty long time. In a 3-D world (Debt, Derivatives, Dollar), compression can remain contained long enough for it to fall off the collective radar. Indeed, over the last few years, we've seen a bubble of hedge funds press bets, play bigger and lever up in lieu of volatility. Now that big swings are back in vogue, alotta managers are seeing the other side of that ride. I'll lay dollars to doughnuts that very few funds were positioned for a 70% spike in the VXO since the beginning of May (at yesterday's high) and I'm equally sure that there's blood in the Street. The question now becomes one of contagion vs. containment, juxtaposed against the broader structural elements.

There are clues to monitor as we delve deeper into this conversation and we do so every day (in real-time) on the Buzz. Things like the breadth (which has been garbage), the dollar (which curiously fell out of bed yesterday just as the tape steadied), technical levels (self-fulfilling as 200-days tend to be), perspective in commodity land (CRB 322 is the multi-year trendline) and geopolitical tensions (from Venezuela to the Middle East) all factor into our delicate brew and must be considered in kind. When it all nets out, I would offer that I respect the downside but expect some upside as we toggle into turnaround Tuesday. How long it lasts, and how far we go, remain dependent on a script that continues to unfold.

Alas, as there's a lot going on and a short time to chime, I'll defer to a spate of Random Thoughts as we ready to swim with the sharks.

  • We touched on the volatility spike. While married puts and stock replacements made a ton of sense at the beginning of May, it's a lot dicier with vols up here. Granted, contagions (such as the Russian Ruble, Thai Baht, LTCM) saw vols spike to the mid-fifties and beyond, but the "lay-up trade" has likely passed.

  • The piggies acted great yesterday, relatively speaking of course, and BKX 108 remains a level of lore for those keeping score.

  • Speaking of levels, the S&P (along with the XOI) held "where they had to" yesterday, effectively keeping the technical sellers at bay another day.

  • I've been eyeballin' Weatherford (WFT) for some time and dipped a toe yesterday. On top of being in the "right space" (in my humble opinion), I don't think this stock will be around in a year. Not advice--as you know--just sharing the process.

  • In the interest of sharing a bit more, my metal plays of choice (which I've got slapped on vs. a handful of financial shorts) are Pan American Silver (PAAS)--which is twisty oversold--and Goldcorp (GG), which has taken a 30% haircut in a few short weeks. I've also squirreled away some Golden Star (GSS) as, well, at three beans, it's defined risk.

  • Again, my risk on the metal and energy bet is a stronger dollar, which likely deflates asset classes en masse.

  • At the risk of going "old school" on you, Apple and Google stochastics are both at levels that have preceded previous bounces. I'm not involved in either but if you are, please see it. They're not great timers, we know, but it's worthy of a noodle.

  • And finally, T-minus eight days until the early bird special for Minyans in the Mountains expires. I know you've got a lot going on, my friends, but this mountain mingle is our one-of-a-kind, once-a-year shindig and it's not to be missed! Click here to learn more about the event or contact us for additional information. We take great pride in this event and when you soak it in, you'll understand why!

  • Good luck Minyans and hit 'em hard.

  • R.P.
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Positions in wft, gg, gss, paas, financials
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