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Chillin' with Dylan


I would have liked to see a bit more fear in the markets (VXO).


How many years can a mountain exist
Before it's washed to the sea?
Yes, 'n' how many years can some people exist
Before they're allowed to be free?
(Bob Dylan)

Good morning and welcome back to the slippy slack. With last week's harsh bruise now yesterday's news, it's time to set sail on a new minxy cruise. "The quick earnings pop was the ultimate fade," said Boo to the bulls who are now all afraid, "and the hapless bovine who have stayed in that trade will be played and betrayed by a crimson cascade!" Will fur be in style and remain for a while or will Hoofy snap back with his craft and his guile? It's a new week of freak so sleeves up and shoes off as we hike up the cliff and peer down in the trough!

There's always a reason assigned to the rhyme and it works in reverse as it did for the climb. As equities enjoyed the spirited sprint, human nature dictated that psychology would follow the tape higher. Slowly but surely, as ursine nerves seemingly frayed and the bearish bents began to stray, technical levels were overcome, structural influences (stimuli) furthered the cause and the fundamentals, laggards that they are, finally offered upside validation. But now, with all three major indices (and the primary European bourses) in the red, we're forced to listen to Boo instead.

The weekend press was quick to pick up the more obvious catalysts for the recent slippage. China is slowing, rates were lifting and, thanks to some insightful reporting by Michael Santoli in Barron's, Carrie 2: The Revenge of Reflation started to get some mainstream play. We discussed the structural elements involved in a potential unwind--and we understand the unfortunate implications--but the viability of that explanation remains a function of performance. In other words, as long as the screens were green, the soapbox derby in Red Dye Junction was incessant rambling. All of a sudden, it (and the notion of stagflation) isn't so far-fetched and some scary seeds have been planted.

I am quite aware that rates are a bit extended (short term) and ripe for a counter-trend trade. If treasuries indeed catch a bid, it'll likely bode well for the financials which, in turn, would buoy sentiment and give a bid to the tape (Snapper's Revenge). What we must ascertain, if and when, is how we should approach that lift and use prices to our advantage. That's a unique decision for each of us and a function of three issues: time horizon, risk tolerance and market view. And don't kid yourselves, Minyans, there is risk to both sides of that trade. We'll likely see alotta posturing today but tomorrow, after Elmer speaks his peace, the sparks will likely fly.

I, like you, am trying to wrap my arms around the potential scenarios and the implications of each. I was discussing my metal thesis this weekend (I started scaling into silver around $6.50 and under and have been trading around the position) and I noted to a friend that my relative confidence has faded a bit. Not because I doubt the relative long-term merits of that commodity--I don't--but because the rising tide has lifted all asset boats. And if liquidity spigots begin to sputter, there is a very real possibility that there will be few places to hide. I plan to watch the metals vis a vis the dollar in the sessions ahead and if they can't garner a jig with a sluggish greenback, it may be a sign that Carrie is anxious and vengeful.

While the meat of earnings is behind us, there will be plenty to keep our collective antennae vibing. Elmer is the obvious headliner but there are a slew of industry specific and company sponsored conferences. The JP Morgan tech fete, BankAmerica aerospace and defense gig, FDA oncology drug panel, Tom Weisel Internet giggle and healthcare check-ups with both Deutsche Bank and Morgan Stanley will keep the wires buzzing. And lest we forget, Senor Beeks will be exploding on the scene Friday with the all-important payroll data.

We power up this flickering pup to find lower global volumes (several markets on holiday), the greenback a tad higher, metals tinted green and traders rubbing the sleep out of their eyes. S&P 1090ish ('04 lows) and NDX 1350-60 (multiple bottoms since October) are the next downside areas of traction so toss those on your radar as you walk the morning dew. And think positive Minyans--the only way you're gonna coin a few shekels is if you believe in yourself first.

Good luck today.

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