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When Sheep Are Nervous


With movement comes opportunities for those who are nimble, lucid and disciplined.

When happily ever after fails
And we've been poisoned by these fairy tales
The lawyers dwell on small details
Since daddy had to fly

(Don Henley)

Good morning and welcome back to the scorning. It was a tough day for the bulls in the hood as the bears stepped it up while the gettin' was good. On the heels of Friday's failure at the S&P 200-day, Boo wasted little time in staking his claim to Monday fame. He began his ursine campaign with the Brother's Lehman, punishing the stock for 5% on the back of one of the best quarters on record. That set the tone for the brokers which, in turn, weighed on the collective psyche. By the time the dust settled, it was a clean sweep for the bears as they collected shekels across the equity board.

As I studied my screens late into the night, I was hard pressed to find a semblance of optimism. With virtually every trading tell taking it on the chin, there were precious few clues for an upside muse. Breadth was horrid, the submerging markets were up to their old tricks (Mexico and Brazil got waxed for 4%), commodity land was a wide yawn from multi-year support (CRB 328ish), quarter-end (more smoke) looms and expiration, while difficult to game, will likely exacerbate volatility as we edge towards Freaky Friday. Indeed, while we've paid homage to big picture blues through our years in the 'Ville, this market is a picture of Muddy Waters.

For those awaking late and rubbing your eyes, you're not still dreaming. Japan (-4.14%) and Australia (-2.6%) suffered their biggest point drop since September 2001 and European bourses are down roughly 2% in lockstep. The culprit, as Minyans are well aware, is a worldwide concern of rising rates, tighter risk appetites and stagflation* (inflation in the things we need, deflation in the things we want). It's the same song we've been singing for quite some time but the tune changes when investors around the world start humming along as they are now. And as psychology is the primary distinction between perception and reality, we've gotta stay lucid as others look within.

I've traded through alotta different tapes and this particular pup is keeping me on my toes. My style has adapted with the market, which is to say that I've got an active trading pad and longer-term bucket that I dance with daily. And while I punted the latter matters into the parabolic frolics of periods past, I've been a bit quick to dip my wick back into some "put away" situations. Indeed, with the OSX off a quick 20% (into hurricane season) and the XAU down 27% in a little over a month, I've had ample opportunity to nibble and pick at long-term faves. I've been early, granted, but I've managed to stay in the game as a function of my active risk (most notably via short financials).

Old school Minyans understand the fragile dynamic--the structural compression, massive debt, higher cost of capital, home equity dependency, dollar squalor, derivatives, globalization, geopolitical unrest, emerging market turmoil, stagflation*, isolationism, blood, vermin, darkness, locust--you name it and we've got it. It's a laundry list of legitimate issues and they're seemingly coming to a head. The question we must unearth is whether the big picture has indeed arrived, whether the deaf ears finally hear the cries of Chicken Little. Remember, it doesn't have to be true---folks simply need to perceive it to be to start the dominos within the interwoven financial fabric.

I offered a thought last week, during my brief upside spit in the wind that bears repeating during these tenuous times. While I respect the potential for the wheels to fall off the wagon, I believe we're gonna toggle rather than tip, frustrating most everyone who prides themselves on being a financial professional. It's a dangerous game--the definition of dancing between the elephants--but it's not impossible. Indeed, the death knell of the trading set is uber-low volatility, which we saw for the last few years. With movement comes opportunities for those who are nimble, lucid and disciplined. And it's not for everyone, so please tread carefully if you're playing games with your hard earned coin.

I take great pride in my performance but have no shame when it comes to admitting my mistakes. That's the 'other side' to putting it out there every day and I own both sides of that ride. So when I share that I've bought a spate of Weatherford (WFT) or Golden Star (GSS)--or that I've been trading Goldcorp (GG) and Pan American (PAAS) from the long side--I do so with the understanding that I'll be held to task when I'm wrong. Please understand that I take full responsibility for my actions but I cannot assume the same for ye faithful. Each Minyan has a unique risk profile and time horizon and, as such, it's impossible to offer blanket advice to anyone reading these words. These are familiar words for many of you but as our community continues to grow, I wanted to again share that fare.

As it stands, I continue to trade 'em the same way--long energy and metals, short some financials and actively shifting risk intraday to hedge or spec as I see fit. I've got that luxury, for lack of a better word, and understand that many Minyans don't share my stylistic approach. I'll simply ask that you remain true to your subjective situation and don't risk what you can't afford to lose. At some point during the last ten years, as a function of technology and at the urging of the powers that be, the market morphed into a game of chance. I once said that profiting is a privilege rather than a right and that's a lesson that we'll learn over and over until the great American weed-out is complete.

One thing is for certain in this age of disinformation and agenda: wealth will continue to transfer as the lines between the "haves" and "have nots" crystallizes. It promises to be extremely difficult and frustrating for those who continue to play the game but there will be opportunities--both long and short--and there will be pain, for those who fail to follow the basic discipline necessary for capital preservation and wealth accumulation. We'll do everything we can to help you find your way--that's why we started Minyanville and that's why so many good people give of themselves daily. But at the end of the day, our mission is to provoke thought (rather than shape it) and it's my hope that by reading our vibes, we're well on our way to doing just that.

We power up to find a crimson tide that would make Denzel Washington blush. Europe, Asia, the emerging markets, gold, silver, crude--heck, my morning coffee was on sale when I swung by the kiosk at 5:30 AM. Alas, and before you toss your babies in the bathwater, it's worth remembering that this is, in fact, Turnaround Tuesday and we will, in time, get a slew of new catalysts. The PPI (exp. 4%, ex-stuff we actually use .2% (MoM), 4.4%, 1.5% (YoY) will highlight the morning parade and a Paulson Lite Goldman (expectations are for a cancer cure, endless music and a Raider Superbowl) will color the financials which, in turn, will shape the tape. Keep your right hand up and your eyes wide open, my friends, and let's chew through this most interesting dew.

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

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position in metals, energy, financials, wft, gss, gg, paas
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