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Random Thoughts: Taking Stock in a Binary Tape


It's socialization and nationalization vs. asset class deflation.


The Tuesday Tussle gets interesting and interestinger as we edge through the flickering ticks. Of particular note is the lethargy in big beta, which joins the financials and homies as Red Dye poster children. We spied the Google action out of the gate (GOOG) and, well, it's pulled Research in Motion (RIMM), Apple (AAPL), Amazon (AMZN) and Baidu (BIDU) into the sour patch.

I've been furiously pinging with the sharpest folks I know and we're in agreement that these are the most compelling times in the history of the financial markets. The battle lines are drawn and they dwarf all other battles to date.

To the left is socialization, nationalization and ultimately hyperinflation (along with trashed currency).

To the right is asset class deflation and the unwinding of the debt bubble (coupled with a dollar rally).

Binary? You betcha bootstraps, Mister.

For my part and consistent with what I've been scribing, I'm in Winky Wright mode. That means capital preservation (zero debt) and trading jabs and stabs in the context of defined risk. The onus is on us to adapt our style to the market and now, more than ever, practice discipline over conviction.

Some Random Thoughts:

  • The Northern Rock Nationalization is a shot in the arm for the hyperinflation camp. Remember, we live in an "asset class deflation vs. dollar devaluation" world and this news is viewed as deflation defense. That's why the dollar is down and it's why asset classes across the board--particularly gold--are up.

  • Other big news this morning? The Pension Benefit Guaranty Corporation, the government sponsored body that insures the pensions of 44 million Americans, will dramatically increase their risky investments such as equities and real estate. As Mr. Practical mused, this is akin to doubling down after a string of bad bets.

  • I continue to dabble around on the short side of Wacky Bank (WB) under $35. Nothing huge but it's defined risk and a sector that is at the heart of the contagion matters. And yes, I'm well aware that the financials are down appreciably since last summer. That's why I'm playing smaller and tighter while weighing lighter.

  • On the bright side, the meat of Mercury Retrograde passes today. So we've got that going for us!

  • We don't "do" rumors in the 'Ville but chatter abounds that the Dept. of Justice is looking at Blackrock with regards to possible off-shore diversion of losses stemming from the Merrill Lynch Asset Management purchase. Talk is that hidden losses of $8-$10 billion could be exposed (obviously not confirmed). I'm not involved, mind you, but that could be behind this latest round of weakness in the financials.

  • Merrill Lynch's David Rosenberg observes that BAA corporate spreads lead the stock market by 4-6 months with a 70% correlation. Based on what spreads have done since the Fed first started cutting rates, the S&P, following this thread, will be trading at 1200 by March.

  • Baseball season already? In the spirit of regaining the prestige of our national pastime, keep an eye on that S&P pennant formation, which remains in play (and typically breaks in the direction of the prevailing trend).

  • Road Trip!

  • Hey! You speak French too! Seriously, the Hoofy and Boo Soc Gen episode could be one of my favorites to date.

  • You wanna hear something nucking futs? I ran multiple full court hoops games Saturday and kick-boxed several times Sunday and Monday. And how did I hurt my knee? Astanga yoga! Grrr... I knew I shoulda stuck to plain vanilla yoga!

  • What's for lunch?


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