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The Ball Stall


What, they'll actually have to start PAYING people now?


Good morning and welcome back to the stray fray. Last night, on the heels of Snapper's late day cameo, I zagged to the left and took the menagerie to Shea for the Met game. While I'm strictly a pinstripe type of guy, there's something about baseball on a warm summer's eve and the critters were in the mood. While sitting along the first base line and enjoying batting practice, a spirited discussion evolved. It went a little something like this:

Snapper: Yo Hoofs, beers are on you tonight. My legs are fried after the late day sprint and I couldn't possibly make it up all those stairs!

Boo: Yeah, nothing like a coordinated effort to squeeze the market higher--you must be proud! Either the same buyer was rotating their orders around the street or they're all in cahoots. When I see a few different firms come in and buy million share prints simultaneously, something smells like sour milk. Daisy?

Hoofy: Hey! There ain't nuttin' sour 'bout that milk buddy--it's grade A homogenized and sweeter than honey!

Boo: (turning to Sammy) Do I really have to listen to this?

Sammy: Lighten up, Francis, he's allowed to be in a good mood. The NASDAQ broke out, the S&P is flirting with a new high, M&A activity is starting to pick up and traders feel emboldened. It's the cost of doing business, Mr. Bear, and sometimes you gotta pay if you're gonna play.

Boo: Well I hope everybody's having a good time cause when reality sets in, there's gonna be a Hoover to the downside. Sure, there could be a second half recovery---in 2010 maybe! In the meantime, we're operating in the antithesis of a "free market" and everyone's partying like it's 1999. Remember how many times Japan was out of the woodwork? Oh, but we're not Japan. And...there's no housing bubble. And...Brittney Spears is a virgin. Gimme a break!

Daisy: What are you thinkin' Toddo?

Toddo: I've been doing the mental rental and trying to make a little hay when the sun shines. The hardest thing to do as a trader is put your bias aside and clear the daily mechanism. Still, and despite the big chill, the onus is on us to adapt to the environment. I've been vocal on my big picture bearish beliefs and regardless of what we're seeing, there's not a single doubt in my mind that this will end fugly. I'm not paid to prognosticate, however, I'm paid to trade. I've been schnitzeling to the left and schnitzeling to the right but I wanna be in shape to unleash the hounds when the time is right.

Hoofy: How the heck did you survive the bubble?

Toddo: Contrary to popular belief, I wasn't always a permabear. While I watched the bubble grow...and grow...and grow...certain things began to resonate. One of them is the price we'll have to pay for the speed of the greed. We're seeing a decent retracement (higher) here but, in my most humble opinion, that's all this is. The only thing I will ask of the Minyans is to take responsibility for their own investment decisions. I can't tell you how many emails I've gotten these last few years from folks bummin' cause they followed the latest gurus advice. The definition of frustration is doing the same thing over and over again hoping for a different result. Don't fall prey to that silliness--stay lucid, remain vigilant and understand the dynamic between risk and reward.

Sammy: What do you think the catalyst is gonna be?

Toddo: Not sure...but the tape is surely vulnerable to a ripple effect. I thought (and still do think) it could have been the government sponsored enterprises (Fannie Mae (FNM:NYSE) and Freddie Mac (FRE:NYSE) but the powers that be have decided to hide the dust under the rug. Perhaps it's Microsoft's (MSFT:NASD) announcement (last night) that it will give employees stock instead of options (starting in September). If this is the new standard--or even if the perception is that it's the new standard--this could massively dilute tech earnings. The point is, the bulls are playing with fire and while it's the bears who've gotten burned, the smell of gasoline is in the air.

Hoofy: (yawn!)

Toddo: Hey, it's not so crazy Hoofs. Trading on valuations is a dangerous and tricky game--we've learned that. If the entire accounting dynamic shifts, however, it could have a profound effect. These things don't always play out right away but it's something to keep an eye on. Could it be the latest brick in the wall of worry? Perhaps--timing is everything. Just put it on your radar please.

The umpire dusted off home plate and the ballplayers settled into position. After a full day of talking tape, it was time to settle back and enjoy the action on the field. Hump Day awaited and we'd have to be tip top, schnitz hot and second to none when the morning bell tolled. Until then, we were at the ball park with our friends and watching sports. It just doesn't get any better than that.

Good luck today.

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