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It's Getting Hot in Here


There are two things we can do--pretend it doesn't exist or prepare ourselves for what's to come.


It's getting hot in here (so hot), I've taken off some shorts...

Yesterday, as traders anxiously awaited (and in some cases, attempted to "front") the end-of-day "liquidation flow," I shifted my bias a bit to position for a potential snapper. Was it an "all in" bet? Nope--with market internals drekky, the dollar firming and commodity vol as wild as it is, I have no interest in playing the Greatest American Hero.

Then why, pray tell, did I pare some piggy puts and layer into some upside exposure? The oversold conditions, a slew of underlying levels (S&P, BKX, MDY, XOI, DRG, Russell, XBD), palpable angst and defined risk. I'm unsure of how long this will last, Don Henley, but if we get that far that fast, S&P 1280 and NDX 1635 is an intuitive zone.

My exposure, as documented yesterday, is predicated in the commodity complex and, while a snapshot of the one-day fray may make me look downright silly, the aggressive sales of my front month paper (on Tuesday) and option rolls (to out-month calls) allowed me to effectively side-step some pain and use price to my advantage. That is, of course, if the script unfolds as it reads in my mind's eye. But with autumn paper in my pocket and New Mexico in my sights, I'm not held captive by front-month theta (decay).

My mind's eye isn't always focused, we know, but I dug the metals last August, stepped aside and tried the short side into the recent FOMC and, while I've clearly been early flippin' my lid back to the buy side, I'm of the view that the sharpest corrections occur in the context of a bull market. With a 22% pullback since May 11, I'll offer that this secular bull has legs that would make Pam Anderson blush. And I can say that without chewin' on a Milk-Bone, as Pammy is a canuck just like my Queen.

As we like to paint both sides of every picture, it would be myopic for me to share this fare without noting that A) there is likely blood on the streets, B) that has the potential to manifest in a derivative-laden financial fabric and C) the metals (and energy) are not immune to a collective asset class pffft should risk appetites abate or the dollar continue to rally. Indeed, there are alotta moving parts and odds are that they'll stay in motion for many years to come.

Last night, while sharing an outdoor dinner with Professor's Succo and Schaeffer, along with President Fish, we spoke about the long, hard road that is seemingly unfolding before our eyes. John, who's the best risk manager I've ever met, offered an "oh-by-the-way" thought that I wanna share with ye faithful. He said that the next few years are gonna be incredibly difficult as we edge through a multi-variable, haphazard market. "It's gonna take an incredible level of guile to navigate this tape," he said as we walked through midtown on one of the nicer nights in recent memory, "we've got an intense government agenda on one side and a mountain of debt on the other. It's not for the faint of heart."

I concur--the long, hard road is a tag I tossed on this tape in 2000 and it's indeed proved true. I looked at my friends as we delved deep into the conversation and soulfully said "You know, sometimes I feel like I'm running directly into the eye of the storm. I've seen this coming for a long time and what do I do? I build a business predicated on a financial equation that is on a slow road to apathy." John stared right into my eyes and said, "We're warriors, would you have it any other way?" And I knew he was right. There are two things we can do--pretend it doesn't exist or prepare ourselves for what's to come. And as far as I'm concerned, the former simply isn't an option.

In that vein, and as we dig in next to William Wallace, I'll ask Minyans to give a shout out to Del Boca Vista. Why? Only six days remain in the Minyans in the Mountains early bird special and, in our fight for performance and capital preservation, there's gonna be alotta ammo available in Vail. Further, staying with the traditional Minyan mojo, there will be plenty of time to balance--from softball to spas, hoops to the links, ranch parties to bench sitting--this is a retreat that the whole family will enjoy. Take us at our word and step up to the plate. You won't be sorry!

Good luck today.


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Position in metal, energy, financial equities
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