The critical element to our future fortunes will reside in the ability of our current capital structure to contain the collateral damage.
I wish I was a headlight
On a North bound train;
I'd shine my light through
Good morning and welcome back to the flickering track. As you're reading this column, I'm on a flight to
The Minx grabbed hold of that vaunted higher low and put some distance between herself and the abyss. While several indices flipped the upside switch (the metals (XAU), drillers (OSX) and brokers (XBD) all edged back above their 200-day moving averages), we're far from the all-clear signal. First and foremost on the list of Matador "to do's" is to mount the S&P 200-day (1261) as there are alotta stops nestled on the other side of that ride. If we can shake free from the ties that bind, S&P 1280 becomes the beacon of light in the bovine night.
I pared the lion's share of my directional risk yesterday vs. the incremental exposure I added on Monday. Why? A few reasons. First, while the higher lows are certainly constructive, I'm not sold on the notion that the structural smoke is behind us. Second, as I've got a three week travel schedule that would make a minor league bus blush, I don't mind a little risk aversion when I'm not in front of my screens to manage risk. Call it learned behavior or dear prudence but I, for one, will choose to call it discipline.
What I'm left with is a handful of holdings (including Weatherford (WFT) and Golden Star (GSS), among others), a reduced spate of autumn piggy puts (including JP Morgan) and a whole lotta dry powder. And while the brokers took out resistance yesterday, BKX 108 continues to offer defined risk for those looking for a short-side level to lean on. Whether or not it contains the banks remains to be seen (it's a multi-linear equation) but for my part--and with my money--I wanna sell blips in tech and financials and buy dips in energy and metals.
That approach will likely produce relative returns in a trending, normalized market. The risk, as discussed in yesterday's Phantom, is out-and-out deflation. While this discussion is old hat to ye faithful, the mainstream media (and our FOMC, for that matter) continues to chirp on the dangers of inflation. Wait a minute! Inflation? Deflation? Stagflation? This is starting to feel like mental master....never mind! You get the point and yes, while I'm trying to inject a little levity into a difficult discussion, I have one too.
If you haven't picked up on the recurring theme of "dollar devalution vs. asset class deflation," you're missing one of the central tenets of the entire financial equation. Until we fully embrace this unfortunate reality--that one, the other or both must occur--the semantics of assigning a proper definition to our economic reality will be a lesson in futility. We've been discussing the FOMC agenda for a long-time---reflate and encourage debt until a legitimate economic expansion takes shape. The problem we're running into isn't the amount of money sloshing around, it's the velocity and value of those paper plays.
While betting on a downside disconnect is a low probability affair, the odds of financial contagion are higher than most folks would likely assign. That, in a nutshell, is why the reaction to the spring slippage has been so severe. During the past few years, a bubble of hedge funds pressed their bets with larger size to make up for the smaller moves. When the VXO doubled in a one month span, many risk managers were left with outsized risk and nowhere to turn. I fully expect to see fresh war stories hit the tape once the ink dries on the second quarter scriptures. The critical element to our future fortunes will reside in the ability of our current capital structure to contain the collateral damage.
Alright, enough with that stuff, let's turn our attention to some more mindful housekeeping items...
As many of you know, we launched Buzz 2.0 this week and it's been a roller coaster of Minyan emotion. The application itself is pretty insane as it delivers our content through an information delivery mechanism unlike anything the Street has ever seen. Alas, as with any software launch, there's bound to be some growing pains and we've been digesting with the best of 'em. Please do us a favor, if you're having issues--any issues at all--let us know. We pride ourselves on a positive experience and will do everything we can to make it right.
The reason I'm trekking to Vail this weekend isn't to down Fat Tires and mountain bike (although that sounds like alotta fun!). It's to shake hands, walk venues, taste food, kick tires, rub elbows, hug trees and do whatever else is necessary to make sure that Minyans in the Mountains III lives up to its lofty reputation. While we got 65% of our attendees in the final six weeks before Ojai, we're almost filled to the
Colorado brim as we trickle towards the same spot on the calendar. Take me at my word, if it were up to me, I'd fly the entire Minyanville community out there and we'd have a heckuva ranch party. But it's not my call--there are only so many spots and so many S'mores--so be mindful of that fact as we skip into summer and head to the hills.
As we've gotta slew of new Minyans in the mix, I wanna take a moment to draw attention to the Ruby Peck Foundation for Children's Education. I started this to honor my grandfather when he passed in 2001 and we've made a serious dent in the lives of alotta children---from teaching the arts to rebuilding Gulf Coast libraries to providing musical instruments to inner city kids to setting up scholarships for those in need. This is who we are in Minyanville. This is what we do. If you're able--and I understand that some are not--please help us to give something back to those who need it most. It'll surely spark some patented Ruby winks from above!
Finally, as I alluded to earlier, I've got a frantic few weeks in front of me. I'm circled for jury duty on Monday and while I'm unsure of how long my civic responsibly will last, I should be able to find some time to scribe some vibe. Next Friday night, I'll be hoppin' the puddle with my bride-to-be as I play arm candy at a family wedding in Spain. That'll keep me away from the 'Ville until the end of the holiday shortened week, returning me to my turret on July 10. Just keepin' ya up as we share our journey and attempt to capture that ever-elusive balance, easier said than done as I'm sure many of you know. I wish you the very best of luck in the land of flickering ticks and nothing but love in everything else.
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