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Redemption Song


This is udderly nutty!


"There's no way on earth we're going to get out of here tonight. We'd have more luck playing pickup sticks with our butt-cheeks than we will getting a flight out of here before daybreak."

-Del Griffith, Planes, Trains & Automobiles

Good morning and welcome back to the lobster shack. While traders linger in the surf, the critters toe their fertile turf. "Earnings won't be all that bad," said Hoofy from his bovine pad, "and those that have been furry clad will see it as a passing fad." Will the recent spate of crimson bait release the dormant ursine hate? Or can the bulls (now quite irate) dig deep and win this great debate? It's here--it's now--it's time to thrill so join us for this Hump de'Ville!

Spending a few days away from the fray always offers a fresh dose of perspective. While I made a concerted effort NOT to think about the Minx while jerkin' around Jamaica, the first six months of '04 left a lot of questions unanswered. As I sat in the sweltering airport heat for my (cough) sixteen hour delay, I started thinking about where we've been, where we are and, perhaps most importantly, how we'll get to where we're inevitably going. Sideways tapes will get ya thinkin'...and ass-backward airlines will push it into the forefront of your mindset!

We're about to get an avalanche of information in the coming weeks and lotsa confused critters are looking for directive and/or validation. We already know that fundamental analysis is one of our primary trading metrics (technicals, psychological, structural) but this particular season will warrant a few extra number two's. While folks have already accepted that earnings growth will decelerate and calibrated their trading radars accordingly, how many have priced in a potential pit stop? If the reaction to yesterday's confessions is indicative of collective expectations, we must surmise that pit crews, by and large, remain skeletal.

The question that keeps resurfacing in my crowded keppe is what the next driver of growth will be? We've chewed through zero percent financing, witnessed a massive refinancing boom, taken advantage of rebates galore and already borrowed more than most can repay. The default stimulus--Elmer's love gusher--remains fluid and can't be discounted when weighing the supply/demand equilibrium. But how deep will the river run and when will the future mortgage payments of our current (and past) largesse come due?

My fear is that the economy moderates, inflation remains problematic and job growth wavers. That's textbook stagflation in anybody's book but won't become a buzzword until it already eats into our bottom line. The balance remains one of dexterity and flexibility as we tick tock towards November's election. Neither party wants to cool the world's largest thermometer but vicious infighting combined with an outsourced war effort makes for a potentially toxic combination.

Credit spreads--an invaluable lesson provided daily by Professor Reynolds--currently paint a relatively benign backdrop. Brian has done some groundbreaking educational analysis on inter-market relationships and I, for one, have learned to incorporate these inputs into my process. There are clear historical instances when real trouble--sustainable trouble--doesn't initially perk up in the credit markets but trading is a function of probabilities. Until the yellow flag flies for the Iron Horse, Boo will more likely trot rather than run in an outright gallop.

We power up this Hump Day pup to find a pink Nikkei, flattish Europe, slippy greenback (DXY has broken support) and snappy metals. Gold and silver are both retesting their respective 200-day moving averages and while technicals aren't absolute, these levels matter nonetheless. We should also keep a close eye on crude ($40), Citigroup (C:NYSE) ($45), BKX 96 (new resistance), XBD 122 ('04 lows for the brokers), the semis (SOX 440) and QQQ 36 (double support area). And think positive, Minyans, as profitability must always begin within.

Good luck today.


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