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Bullets Over Matador City

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...the path to resolution will toggle between inflation and deflation.

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Yesterday's college try hit a wall of supply as concerns over tighter risk appetites, structural imbalances and rising global rates tipped the ship into the close. Given the reactive rationalization of the collective mindset, the crimson ripple rose to a tide as traders edged into the overnight noodle. An overseas sneeze quickly spread, with Europe down a deuce, Japan 3% lower and submerging markets getting waxed on and waxed off. As the world turns her attention stateside, all eyes on us as we power up the Thursday pup for another roll in ze hay.

While I'm ever-so-conscious that the wet Bounty paper towel only has so much moxie, I danced between the elephants yesterday and bought the opening. My vehicles? The requisite metal exposure, on which I've been both early and early, and some trading crack otherwise known as the homies. I tried to remember the last time I was long the builders and, whether it's a function of A.D.D or pure discipline, I couldn't muster the memory. The joy ride didn't last long, however, as the flashing sirens of reality pulled me over with a stern warning. And, as art imitates life, I chose to rent rather than own and went home flat to the share.

What I was left with was a 4% blink-and-ya-missed it pop in the XAU that ultimately rolled over with the tape. While I booked some of those gains into the liftage (discipline), I opted to put some metals 'away' as I start to rebuild the longer-term side of my book. There is a fine line between rationalizing risk and respecting it and that's a line we all must walk. I've been on the energy and metals train for some time and begrudgingly got off when the bulls got a bit loud. Now, with the wheels wobblin' on the wagon, I'm a bit more comfy with exposed toes.

The risk, of course, for any asset class play is outright deflation. At dinner last night with John Succo, Pepe Depew and Stephanie Pomboy of MacroMavens, we spoke about our nation in general and our financial fabric in particular. There are solutions--foreign monetization of debt through acquisition, among them--but the path to resolution will toggle between inflation and deflation. We'll call it stagflation*, which is to say that historic precedence may not apply but by the time the causation is obvious, the solution will be a mute point. The only remedy is awareness, which is why we come to Minyanville each day and why we continue to attract human capital such as yourself.

A few other vibes before we strap ourselves in:

  • A tale of two tapes? If we slip, we'll point a finger towards the emerging markets and structural imbalances. If we lift, the credit will undoubtably be the capture of Al-Zarqawi. Either way, watch our tells (financials, breadth, dollar (which is up a full percent) and the levels (S&P 1247-60, BKX 108, XBD 203, Russell 702, DRG 323 and HGX 205)

  • The Cliff Branch on the Bovine Ranch yesterday? Yep, the financials, with their relative strength in the face of the crimson cross-currents. Hey, as go the financials, so goes the tape, right? That's either a blessing or a curse, depending on how energy eventually leap frogs the piggies to become the top weighting in the S&P.

  • Speaking of the financial complex, I think Henry Paulson is gonna make a helluva sale. While I would like to believe patriotism led him to the Treasury, odds are that he's taking a trade and making a trade-off. He's no dummy, and investors would be wise to read between the lines.


  • Do you see the SOX sitting directly on the uptrend line from--are you ready--the 2003 low? The iShares Goldman Sachs Semiconductor (IGW) broke a triple bottom at 59 yesterday but this trendline is clearly a focus.

  • Loonie Tunes? I gotta say, I think the Canadian Dollar is gonna be the strongest North American currency for quite some time. And it has nothing to do with my engagement to a canuck.

  • Don't we know better than to celebrate trades that aren't booked?

  • Are Denver area Minyans "set" with details of my June 22 gaggles?

  • Hit 'em hard, Minyans, and I'll see you over on the Buzz.



R.P.

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position in metals, energy
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