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Piggy Banks

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Define your horizon and don't get caught up in the emotional frenzy.

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Good morning and welcome back to the snickering snack. The race and the chase is officially on as this quarter ticks towards tomorrow's red dawn. The critters are tense and traders are fried as we search for the clues that will serve as our guide. "How is the tape--just which tape do you mean?" asked Sammy the snake as he surveyed the scene, "yesterday's trek was a sight to be seen as we fried up the hide of the ursine cuisine." Will today's minxy fray pave the way for more play or can Boo and his crew lead the poor sheep astray? The Hump has arrived so you'd better make way as we listen to what the Minx has to say!

We power up this prickly pup staring squarely at the calendar. While tomorrow officially ushers in the end of the third quarter, funds will likely stay stealth during the Thursday blur . As such, the games people play will likely manifest today in the form of defending and (cough) "offending" core holdings in various portfolios. That, coupled with the looming presidential debate and the G7 summit, will litter our landscape with lotsa food for thought.

While the next few days--and the following few months, for that matter--will be crowded and emotional, I would like to step back and discuss the big stinkin' elephant that sits in our midst. I was talking to one of my sales traders yesterday who offered that 40% of his accounts are under water this year and the majority of those in the green were marginally so. There's a lot of uncertainty, a ton of hand wringing and plenty of indecision among the active hedge funds that he covers. Not surprising, I thought, given the overcapacity in the industry and the tricky nature of the tape.

That got me thinking about secular trends and the "bigger picture" of where things are and where they're going. I opined at the beginning of this year that if I had the patience, I would toss on "long energy and metals" and "short financials and tech" and come back in a few years. As a large portion of my portfolio is "actively traded," I played that way but didn't pack it away as I could have. As it turned out, obviously, that "close your eyes and leave 'em alone" style would have yielded a helluva year.

Every time I see the Iron Horse post, I race to his column as he's offered keen insight and educational value regarding the credit perception of our state of health. And while there is nary a scare in that market (valuable input), I can't help myself from looking out at the broader trends in the financial complex. It's not just that I believe energy will eventually overtake financials as the highest weighting in the S&P, it's also a function of the manifestation of the overcapacity that is unfolding before our eyes. And that discontent will ultimately filter through the system and onto the screens.

We've seen a growing frustration among our peers and throughout society and--as we know--fingers tend to point when the chips are down. We've seen some seeds of discontent planted as Citicorp (C:NYSE) slipped, Mother Morgan (MWD:NYSE) fumbled and Fannie Mae (FNM:NYSE) fizzled. And while they were the bad apples in an otherwise alright bunch, it remains my humble view that financial institutions will find themselves on the defensive if (when) the tough tape continues. That may not be actionable right here or right now, but it's something to chew on as we cast an eye towards the future.

Good luck today.

R.P.
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