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Monday Morning Quarterback

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Keep your head up, your eyes open and your thoughts positive.

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The Autumn Wind is a pirate
Blustering in from sea
With a rollicking song he sweeps along
Swaggering boisterously

(Steve Sabol)

Good morning and welcome back to the pigskin pack. The autumn wind has arrived and I suppose we should be thankful that the Raiders didn't lose anew. While my heartbreaking season was given a football fashioned standing eight, there's no such luck for flickering fans of a different breed. The Minx will soon open for business and with it, the great debate will once again rage. Will Goldilocks assume the role of cheerleader with the clock ticking down on the third quarter? Or will the ursine uglies upset the betters with another gritty goal-line stand? We'll know soon enough, Minyans, so lace up those cleats, put on that game face and let's get ready to rumble.

We've chewed through a slew of scenarios over the past few months. The first and foremost was the notion that a global slowdown was a greater risk to the economy than spates of inflation. To be fair, we were in the stagflation camp for a long while--inflation in things we need (energy, healthcare, education) and deflation in things we want (laptops, plasmas, cell phones). That dynamic shifted as we put away our linen shirts and dutifully monitored the graphic novel that was the CRB. We've been of the belief that we must pick between asset class deflation or dollar devaluation assuming, of course, that our FOMC is still calling the shots with most of our debt in foreign hands.

To wit, the following blurb was picked up in this morning's Wall Street Journal:

"U.S. debt payments to foreign creditors exceed earnings from investments outside the country and may put pressure on the economy by making it harder to save or spend more income. For the first time in at least 90 years, the U.S. paid significantly more to foreign creditors than it earned on overseas investments. The gap reached $2.5 billion in the second quarter this year, or a quarterly debt payment of about $22 for each U.S. household compared with $31 in net investment income in 2005. Though the amount is a small part of the $13 trillion U.S. economy and the trend may yet reverse if interest rates decline, economists say it also might mean that more U.S. income will be sent abroad, forcing Americans to work harder to maintain their standard of living."

And so it is, the big picture has started to poke its nose into the smaller pictures that make up the mosaic of the market. Indeed, a few cracked tiles fit into the not-so-pretty picture last week, with Yahoo! messing the bed, the PPI soft instead, the Philly Fed full of dread and most fund managers looking ahead (to quarter-end). Forget, for a moment, the risk to the system that has been created by a bubble of hedge funds knee deep in derivatives and linked at the hip by an interwoven financial fabric. We're talking pure metric assimilation here, with the potential for a sentiment shift that can turn the herd in one fell swoop.

I don't profess to know the timing. In fact, I don't claim to know, with certainty, that the balance of the scale will indeed tip. I'm simply aware that much of what we read, see and hear in the popular press and mainstream media is skewed away from the three bears. And as these are incredibly important times--for the world and for the market--I'll ask you to please see all sides of every trade before you risk your hard earned coin. This is gonna be a nutty week with psychology (into quarter-end) assuming top dawg on our trading totem pole. Keep your head up, your eyes open and your thoughts positive.

Good luck today.

R.P.

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