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The Deep Breath


Digest the big picture one little picture at a time.


Walk into splintered sunlight,
Inch your way through dead dreams to another land.
Maybe you're tired and broken,
Your tongue is twisted with words half spoken and thoughts unclear

(Grateful Dead)

Good morning and welcome back to the back nine hack. We're over the Hump and well on our way to penning the script of our Minxy essay. The critters are jacked in more ways than one as they ready themselves for three days of fun. "You gotta enjoy the time that we share," said Hoofy the bull with his usual flair, "Everyone knows that balance is rare and we wouldn't be us if we didn't care." Can the bovine buy time (and take stocks to boot) or will they grasp air in their upside pursuit? It's time to step up and finish this week so let's settle into the critter mystique!

One of the most valuable lessons I've learned is the ability to approach each day as a new beginning. It's easier said than done in our business as every session seems to invoke memories of the past. Still, as we cast our eyes to the other side of the '05 hump, we'll need to clear the mechanism and define our perspective. When the new year tolls and we set some fresh goals, there can be no regret, just the understanding that we did the very best we could.

In many ways, our current juncture encapsulates the first half fret albeit a bit more acute. The structural metric is fragile yet fierce, almost belligerent as it roams the Street with bottle in hand. The Fed seems intent on keeping it juiced and is encouraging the crowd to stay and play. It's a classic case of "it'll work 'till it doesn't" but, unfortunately, the only way to know when it doesn't is as a function of price.

The technicals are a bit tricky as multiple frames are competing for attention. Pepe Depew's look under the hood finds constructive action in the context of extended field position. And with the constant vascilation at a bevy of large levels (BKX 100, NDX 200-day, DJIA (failed anew at 10,400), S&P 1200, XBD (near all-time highs), there is a certain "reactivity" to this metric. To add spice to the mix, traders tend to default to the charts in the absence of clarity and that clouds many of our traditionally actionable levels.

Market psychology is perhaps the biggest concern as it represents the largest disconnect. With the VXO compressed (to near-single digits) and Investor's Intelligence finding 19 bears (out of 100 random critters), there is a slim margin for error in a very complicated world. We know this isn't a causation of concern but rather a potential contagion from concern. Until a catalyst emerges as a spark in the dark, volatilities and complacency will battle for supremacy in the "pay no mind" club.

Fundies will soon come into focus and climb up the metric totem pole. There is a growing chorus of "stocks are cheap" and all eyes will be on the second half outlook. There are two caveats imbedded in this metric that don't get much respect. First, nobody seems to think that we'll enter into a prolonged period of multiple contractions. That seems intuitive to me on the back end of the bubble (excess breeds excess) but it's still stealth on most radars. The second is the disparity between legitimate economic growth and debt induced demand. Money is money when it comes to earnings but the origination (and whether it's sustainable) warrants consideration.

Macro variables remain on the radar as they'll influence the equity equation. I think that crude has upside although it'll likely be a choppy ride with a wide range. The dollar is also a major factor as we'll ultimately arrive at a choice (devaluation or asset class deflation). While the script is still being written for the grubby greenback, I'll opine that there's "some" upside left and alotta downside to follow. And I think the Metals could have a nice second half of the season if this evolves or, potentially, even if it doesn't.

Today's trade is dicey as we balance a confluence of occurences. We know from Professor Goepfert that there's a tendency for the S&P to reverse the previous day's course after the rate hike. That fits into the "new monthly flows" thesis and the belief that new money will be put to work. I would caution Minyans to keep their eyes peeled for hedge fund redemptions but that may be next week's business (or a non-event altogether). Finally, and not to be taken lightly, the ranks will become increasingly thin as we edge through the afternoon and turn our attention to the important stuff.

On that note, I'm gonna excuse myself from the frazzled fray around 2pm as I head west to see some old friends (it's good for the soul). After the obligatory (and happily anticipated) vibe time with Sir Macke, we're gonna host the San Fran Minyanfest Tuesday before my hand glider down south. After a slew of meetings and a plate of Persian food, I'm up to Ojai for a few days of Sundance visualization. I'll be back at MVHQ the following Monday and Tuesday before joining our Minyan brethren in Chicago for the Trader's Expo.

Before I excuse myself, let me take a moment to offer my sincere gratitude to everyone involved in the critter mission. This community is simply amazing and it seems to be gaining momentum each day. There is a MUCH bigger picture in my crowded keppe but I understand that the purpose of the journey is the journey itself and I strive to appreciate every single day. We have a lot to be thankful for and it should never take something bad to make us realize that we've got it good.

Have a healthy, peaceful and enjoyable holiday respite and I'll see YOU on the other side of a few tomorrows.


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