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Monday Morning Quarterback


There is no shame in admitting it's hard--there's only shame if we ignore that fact and recklessly bet without edges or defined risk.


A peaceful place or so it looks from space
A closer look reveals the human race.
Full of hope, full of grace, is the human face.
But afraid, we may lay our home to waste.

(Grateful Dead)

Good morning and welcome back to life and back to reality. On the heels of an uneasy week of information indigestion, we arrive at our desks to begin the spin anew. We live in a complicated world and, as the markets are the ultimate arbiter of our collective conscious, they've been understandably on edge as we attempt to discount considerable risks and capture elusive rewards. We had a lot to assess before the latest geopolitical twist to the mix and, while we chewed through our metric base late last week, we enter the fresh five day set with the benefit of time, hopes of peace and a whole lotta news coming down the pipe.

The recent press, as you might have guessed, has been decidedly cautious. While the New York Times highlighted the risks of variable rate mortgages, the weekend Journal cast a wary eye towards the consumer crunch. These issues are old hat to Minyan faithful but, as we're apt to say, perception and reality have been disconnected for quite some time. The question, as we ready ourselves for what's to come, is whether that chasm is indeed closing and, if so, how that will manifest in the context of time. Along these lines, and for those who haven't read the recent missive from Macromaven's Stephanie Pomboy, I strongly urge you to give it a gander. It aptly captures many of the themes that we've discussed through the years and plants new seeds which we will together sow.

The immediate task we face as traders is to identify whether the recent barrage of bad news is a precursor to an upside wall of worry or an obvious warning to reduce risk and conserve capital. Surely, if the markets can rally after 9/11, isolated terrorism in Mumbai and continued friction in the Middle East , while sad and unfortunate, won't unhinge the markets. The element I wrestle with is whether the current backdrop, through the lens of our four primary metrics, will allow for the rally that so many seem to need. And if it does--please note that the Israeli stock market, which was down 10% on Wednesday and Thursday, closed up 3% yesterday--whether those gains will indeed be sustainable.

We strive to add value in the 'Ville and I'm quite conscious that making "calls" is the quickest track to perceived credibility. However, given the uncertainty in the world and the fragility in our midst, I'm reticent to fabricate a feel or proclaim the "easy" trade. While I have a strong sense of the big picture conundrum (asset class deflation vs. dollar devaluation), the near-term nuances are extremely difficult to gauge (i.e. - there is no short-term disconnect to lean against). There is no shame in admitting it's hard--there's only shame if we ignore that fact and recklessly bet without edges or defined risk.

While we'll noodle the real-time inputs over on the Buzz, I will offer a few random thoughts with hopes that they add value at some level.

  • Earnings season should provide the heretofore monolithic market with a bevy of alpha bits (stock specific moves) and, in the process, provide some clarity as we fit the fundamental metric under our trading table.

  • When the going gets tough, it sometimes helps to view the big picture as a series of little pictures. In that vein, please keep an eye on S&P 1220 and Russell 670 (June lows) and BKX 105ish (200 day) as a framework (not a solution) with regards to risk management.

  • While the recent spike in volatility measures may, in fact, add grist to the "contra-rally" camp, we're simply reverting to the mean after a few years of compression. In fact, we're roughly six percent below the historical norm (how's that for perspective?).

  • Field position into earnings is entirely more "heelsy" (oversold) in the four-letter arena. Old school stocks remain "middle of the road" with regards to my mainstay stochastics.

  • Boom Boom Bernanke will step on stage Wednesday to deliver his semi-annual testimony on the economy. With evidence mounting that the economy is slowing--in the context of stubborn energy, healthcare and education costs--he'll be walking a very fine line indeed. Thank you Alan Greenspan, and I sincerely hope you're enjoying life at Del Boca Vista.

  • Many are looking to earnings as an upside catalyst. That remains to be seen but, for what it's worth, I'll again remind you that multiple contraction is the fatal flaw of fundamental analysis. And when the dust settles, I foresee a much lower aggregate market multiple for US equities.

  • The Chinese National Bureau of Statistics director Qui Xiaohua said that economic changes are forcing people to pay more for housing, medical care and education and citizens are more reluctant to spend. He also opined that wage increases are lagging economic growth and weighing on the consumer. My first blush reaction when reading his comments this morning? "Geez, while this isn't warm and fuzzy, it sure seems like a more honest assessment than what we get here in the States."

  • The headlines will come fast and furious this week. We all wanna make hay when the sun shines but remember that the ability not to trade is often as valuable as trading ability. Also remember that the "reaction to news," rather than the news itself, will hold valuable clues on the supply/demand backdrop.

  • As go the financials, so goes the tape. In that vein, keep an eye on Citigroup this morning (they missed EPS and revenues for the quarter) and JP Morgan, BankAmerica and Merrill Lynch later this week. And remember that this complex doesn't trade on "what was," it will trade on "what will be." With the yield curve inverted, the cost of capital creeping higher, consumers getting crunched, structural smoke possible in a derivative-laden, finance based economy, I continue to subscribe to my (long held) belief that metals and energy enjoy secular winds that banks (and tech) sorely miss.

  • And remember, if playing energy and metal equities as a proxy for the commodities, nationalization (hoarding or natural resources) creates additional risk for that methodology.

  • Please note that the dollar is quite strong this morning (DXY +90 bips) and that's been an asset-class headwind in recent months.


  • T-minus 24 days and counting until our third annual Minyans in the Mountains financial retreat. Minyanville's mission is to surround ourselves with intelligent human capital that we trust as we fit together the pieces of this very challenging journey. This process comes to life once a year and, for those looking to absorb acumen and bridge networks, there isn't a finer investment of time or money. And yes, we're gonna have a heckuva lotta fun doing it.

  • I'll be traveling for a few out-of-town business meetings tomorrow and will be away from the critter fray. It's not an optimal time to be absent from my turret but I'm juggling alotta hats as we build the Minyanville community. I trust you'll find that my fellow professors, savvy as they are, will offer a seamless content proposition in my stead.

  • Finally, if you're diggin' the Minyan Mojo and want to set up your network with a gratis trial of the Buzz & Banter, please let us know! We grow organically in these parts and we rely on ye faithful to help spread the word of who we are and what we do. Thanks kindly in advance for taking the time to help us out. It is truly appreciated.

  • Good luck today.


Positions in JPM, financials, metals, energy

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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