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Trench Town Rock

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Please be careful not to trade equities purely as a function of the energy action.

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Good morning and welcome back to the saddle. Perhaps a time out was just what we needed as traders absorb the week that preceded. There's a lot going on as the world continues to spin and, as the critters touched down in the states a few short hours ago, we're gonna share some quick vibes to kick off our fresh set of flickering ticks.

There is a growing chasm of interpretation regarding in the aftermath of Hurricane Katrina. The Matador Crowd staunchly believes that the rebuilding effort will buoy an already vibrant economy and add some zest to Hoofy's quest. On the other side of the tracks, the Red Dye contingent views the (dual demand and supply) shocks in energy as a potential tipping point between perception to an increasingly uneasy -and some say, unavoidable--reality.

As we discussed last week, the bear side of the equation is predicated on two tenets-economic drag and the structural underpinnings. The trick to this unfolding trade is allowing for the potential for both while understanding that neither will be immediately apparent. There's little doubt that the stealth tightening (crude) will weigh on an already taxed consumer but that won't manifest in today's headlines. Likewise, if forced selling (by the insurers) is needed to finance claims in the Gulf Coast, we'll likely witness that in the price action rather than the media coverage.

Brian Reynolds notes that a large surge in corporate bond issuance will begin later this week. That, among many other hints and haunts, will provide clues as we collectively figure out this latest bout. I'll be watching our mainstay short-term tells-the internals, the financials (BKX 98/BIKX 100), beta, small caps and the macro migration-for guidance. And, as a framework, our technical levels remain very much in tact as we emerge from the summer bummer that was August.

I powered into Labor Day with a few thoughts floating around my crowded keppe. I sensed that crude might have exhausted its '05 rally near $70ish/brl (a vibe that was a day early but thus far in tact). I also mused that the dollar could be facing multiple headwinds and further devaluation. And I offered that, while the Minx is exhibiting impressive moxie in the face of uncertainty, the onus is on Hoofy to once again prove that he's got the upside Motts (read: rallies may be fadable).

On a more important note, I would like to thank ye faithful for the outstanding effort in aiding those suffering in the wake of Katrina. We began a drive on Thursday (100% of any money raised by the Ruby Peck Foundation in September will be donated directly to the cause) and the response has been incredible. No pledge is too small and each gesture is greatly appreciated as Minyans continue to do our part and give something back.


Thank you ever so much and have a fantastic week!


R.P.

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