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Monday Morning Quarterback


Opportunities are made up easier than losses.


Good morning and welcome back to the flickering pack. On the heels of my quick Colorado jaunt-and before I scoot to jury duty this morning to satisfy my civic responsibilities-I wanna scribble some dribble as we begin our fresh five session set. As I've been sans screens for a few days (and will likely be in a similar situation for a few more), I share this fare with hopes that some beneficial vibes resonate. These are critically important times in the land of flickering ticks and take me at my word that I'll be back in the saddle-and back on the Buzz-as quickly as I can.

The Denver Chronicles

I hosted two town hall chats on Thursday, the first with the good folks at the CFA and the other with the kind peeps of the AAII. While the former were decidedly professional and the latter was skewed to the individual subset, I walked both through my process of metric assimilation when viewing the financial dew. In doing so, I ranked the four pillars of our metric mix in the following order, offering vibes on each that I must summarize due to the space constraints of this column.

  • Structural: We spoke about the "dollar vs. asset class" dynamic, offering visual validation that gold, crude and stocks have traded "monolithically" against the greenback. We touched on the simultaneous 'flations and the higher costs of things we need coexisting with the lower cost (and pricing pressure) of things we want. We discussed the difference between legitimate economic growth and debt induced demand, how total debt in our country is more than 300% of GDP and how that will manifest in the years ahead. And we monitored the compression that's prevalent in our derivative-laden financial fabric and discussed how that'll play out in the current state of globalization.

  • Psychology: The only intangible metric, we touched on the disconnect between perception and reality and how profits are found in that chasm. I opined that the collective mindset has been lulled into a state of complacency and used a six year chart of the VXO to provide a proper historical perspective. The recent six week downdraft was a whiff of the Phantom, I opined, with nothing changing other than market psychology. I noted the relative calm of this latest angst when juxtaposed against previous examples of real fear. Finally, we discussed emerging trends of social acrimony and how that might translate to risk aversion.

  • Technicals: Do folks follow technical analysis because it works or does it work because people follow it? I use this metric as a framework-and a means to define risk-rather than as an absolute solution. We discussed how reliant traders and investors are on this approach, which clouds its relative value when 8000+ hedge funds are staring at the same levels. We walked through our current juncture, discussing the difference between basing (above support) and churning (below S&P 1260). And we offered some contextual perspective that the road ahead, while multi-linear and dependent on a confluence of inputs, will likely be fraught with supply.

  • Fundamentals: While many analysts are making a case that the market is currently "cheap," I offered that margin contraction is the fatal flaw of fundamental analysis. I'm in the "excess breeds excess" camp, which is to say that the triple digit multiples from the bubble days will likely lead to single digit midgets on the other side of the ride. I also offered that I've come to assimilate this metric during periods of extreme overbought or oversold conditions during reporting season. Good news (that's not great) is sold when the tape is extended and bad news (that's not horrid) is often bought after severe routs. On the whole, and as an aggregate, I rate this as the least "influential" market metric.

We also discussed numerous societal and financial topics, including my long-held belief that Alan Greenspan would not skate through the annals of history with his reputation in tact. Sure enough, our friends at Barron's touched on that very topic this past weekend, pointing to Elmer's "call to ARMS," as Stephanie Pomboy would say, and the sad fact that unsuspecting masses effectively sold an option on interest rates.

The Vail Trail

From Denver , I copped a ride from Minyan Eric Knight, who was returning to his home in Aspen, and joined Vanessa in Vail as we put the final touches on our Minyans in the Mountains III retreat. While the weekend was spent with an array of event planners-all of whom thought we were severely under-pricing our Sundance of Finance-we visited all the hot spots of our upcoming mountain mingle. That included the 4 Eagle Ranch, where we'll be hosting our Friday night soiree, and the Lazy J Ranch, which will be our venue of choice for the Saturday night blow-out.

When pressed why we weren't charging more for our event, I explained to my newfound friends that Minyanville is an inclusive community and we're already pushing a price point that is above many Minyan's means. They explained to us that most events don't shoulder the load that we're currently claiming and that, if they did, the costs would be considerably higher. "That's not who we are," I explained to them, "and besides, we're hopeful that those attending will walk away with an acquired acumen that'll more than offset the cost of this conference by preparing them for what's to come and how to handle it."

And so it is, with six weeks left until we gaggle alongside the babbling brook, I will again share my excitement as we ready anew for our upcoming fete. Those who joined us in Ojai can attest to the tangible and intangible benefits of joining our gathering of human capital-the networking, the thought provocation, the balance that seems easy to say but remains so difficult to attain. With mornings of content, afternoons of group sessions or leisure activities and evenings on working ranches (with working bars!), I can promise that there will be no stone left unturned-and no Minyans returning unhappy.

A Look Ahead

The obvious focus this week is Thursday's FOMC when the powers that be are expected to nudge rates higher for the 17th straight time. 25 basis points isn't a biggie, we know, but all eyes will be focused on the text as they look for the light at the end of the tunnel. Again, Minyans, please remember that the end of the rate hike cycle isn't a panacea for what ails the flickering ticks.

  • An equally important influence will be the quarter-end posturing on the heels of the toughest stretch in recent memory. I maintain that there is blood in the streets that's up to our ankles and "preservation of lifestyle" is a powerful motivation. It's not actionable, per se, but we should respect the fact that unforeseen crosscurrents will abound. Deep breaths-and remember that the ability not to trade is often as important as trading ability.

  • I pared the meat and potatoes of my book as a function of my intermittent eyes this week and next. True to my long-term secular vibes, I left on some metals and energy plays (Weatherford, Goldcorp, Golden Star, etc) versus a spate of autumn piggy puts (including JP Morgan). It's smaller than I would otherwise have on but if I've learned anything over my sixteen years, it's that opportunities are made up easier than losses.

  • We wondered aloud early last week when M&A activity would pick up and sure 'nuff, we got a spate of marriages into the weekend. I think it continues, with energy and metal mergers leading the way.

  • Another 'theme' from my Denver noodles? The continuing chasm between the "haves" and the "have nots." Indeed, a recent study by Merrill Lynch found that there are 8,700,000 millionaires in the world, up 100% in the last decade. Simultaneously, there is tremendous global poverty with children dying of starvation daily. What's missing from this equation? The middle class, which has steadily eroded and, in my opinion, will continue to deteriorate.

  • And finally, lest you think that the dollar is a lock as the reserve currency forevermore, understand that there are agendas already in play to diversify holdings away from the greenback. We've seen it in the Asian economies for quite some time and the Middle Eastern countries are in motion as well. I love the USA and bleed red, white and blue but when it comes to planning for my children's future, a little diversification (from dollar denominated assets) isn't the silliest thing I've ever heard.

Good luck today.


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Position in metals, energy, wft, gg, gss, jpm, financials
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