Random Thoughts: Sifting for Cheer in the Age of Austerity?

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Gate Sniffage! - 10:25 am

Good morning as I dust off my keyboard, take a shave (I looked like Tom Hanks in Castaway) and focus my gaze on my eight screens. Having spent ten hours catching up yesterday (most of it on my 2008 recap, coming Wednesday) before zoning into the Giants-Panthers contest, I'm feeling somewhat refreshed and incredibly excited as we ready to swing into 2009.

I offered a constructive contrarian view on November 19th that was largely predicated on the downside reversal of the US Dollar. Since that time, equities are up roughly ten percent and the dollar is down about the same.

Minyans know all to well our oft-stated concept of Our Wishbone World or, "asset class deflation vs. dollar devaluation." The caveat to this equation--and something we've been harping on for some time--is foreign appetite for dollar-denominated assets, which has clearly been strained, to put it mildly. 

Further to that, we've drawn the analogy between the current period and the dot.com bubble. Just as everything they said the Internet would be came to fruition, it couldn't happen without the technology crash. I view globalization much the same way, although that can't occur without debt destruction.

As perverse as it sounds, 2008 has been a healthy, albeit extremely painful, cleansing process that should lead to greener pastures IF--and this is perhaps the single biggest IF in history--the world can avoid isolationist tendencies. And along those lines, this column, highlighted by Professor Jon Markman this morning, stood out like a sore thumb.

I'll be back as I get my bearings. In addition to massive ketchup, I also managed to lose both my phone and my drivers license on the return trip home. So I've got that going for me.

But hey, you know what? It could be worse. Good to be back, Minyans--it's good to be back.
 

Of Toes and Dips - 11:20 am

As old school Minyans know all too well, there is an unwritten rule in the 'Ville that when I return from a respite, it typically takes me a few days to find my feel. Knowing thy self--and with my 2008 returns pretty much locked and loaded--I'll be in "do less" or, at the very least, "do it smaller" mode for the remainder of the year. That won't stop my from sharing my eyes, of course, so in that vein:
 

• You can learn a lot just by watching. I thought about that when the market didn't swoon on Madoff Friday (and jacked higher the following week) and the same can be said after an effectively flat week in the face of everything the Fed could possibly throw at it last week.
  
  
• Over in Tea Leaves R' Us, market internals are 2:1 negative, beta is listening to some chin music (remember, if there is bang for the buck performance anxiety in play, it'll manifest here first) and traditional defensive sectors (drugs, consumer non-durables) act dry. 
  
  
• On the "other side" of that trade, Citigroup (C) and JP Morgan (JPM) both trade with a bid. I was about to point to Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG) as well (I sort my universe by industry sector) before shaking my head and smiling to myself.  2-3% gains in those names doesn't even register two decimal places out on an absolute price basis.
  
  
• Speaking of consumer non-durables, while their out-performance was one of my ten themes of 2008, I pulled back my horns when the bailout writing was on the wall. Remember, if the dollar swoons and input prices jump, this complex will bear the brunt of the margin contraction.
  
  
• I continue to watch crude with an interested eye for there is precious little geopolitical risk premium embedded in current levels. And yes, I say that with a conscious nod to the downside gap that "works" to $34/barrel.
  
  
• Still chewing on a mouthful of ketchup. Lemme hop friends, and I'll be back.

Hop Scotch! - 1:23 pm
 

• If you missed this article this morning, please take a sniff. It encapsulates everything we've been saying about the single greatest risk to global stability and financial recovery (in no particular order).
  
  
• Did you really think I would let Hanukkah pass without this oldie but goodie?
  
  
• Vacation or no vacation, I spent a fair amount of time pondering my upcoming 2009 themes (particularly as many forward looking vibes in 2007 and 2008 came to pass). Potential candidates include:
  
  
  • The restructuring of financial industry compensation.
    
    
  • The inevitable seismic readjustment.
    
    
  • Federal Reserve Debt and the attendant implications.
    
    
  • Societal acrimony shifting to social unrest and geopolitical conflict.
    
    
  • A stiff rally preceding the next leg of reality.
    
    
  • Or perhaps a 2009 that mirrors 2002?
    
    
  • Double digit unemployment (I foresee a 20-handle on this, but timing is uncertain).
    
    
  • Salary deflation for athletes.
    
    
  • A Super Bowl ring for my silver and black (just making sure you're paying attention).
    
    
• If you wanna toss your hat in the ring and submit a theme, please feel free!
  
  
• Oh, today's tape? Same as it ever was with regard to our trading tells and truth be told, the holiday thin ranks open the door to an outsized move in either direction. I have yet to put a chip on the table today but again, that's a combination of know thyself, a mouthful of ketchup and the learned knowledge that boredom isn't an actionable catalyst.
  
  
• For years, we've spoken about financials in drag such as General Motors (GM), Ford (F) and General Electric (GE). For what it's worth, I think GM will be toastage, Ford has a decent shot at being the lone survivor and GE will have a whole lotta splainin' to do next year.
  
  
• Weighing in on the auto bailout--and with all due respect and empathy to the thousands of displaced workers in Detroit--this is throwing away good money after bad. $17 billion at this point is a Band-Aid on a broken bone. It truly is a shame... and brings to light another potential 2009 theme: Pension Panic.
  
  
• Lemme hop as the engine awakens upstairs. As always, I hope this finds you well.

All the News That's Fit to Shvitz! - 2:18 pm

Lest there was any doubt that we've entered The Age of Austerity, I finally thumbed through today's New York Post and found the following headlines front and center:
 

• Madoff's Son in Shopping Gall, highlighting Andrew Madoff and his soon to be ex-wife's "posh gift spree amid the $uffering" yesterday in Soho.
  
  
• Love Me, Spender, discussing United Technologies (UTX) chairman George David's $206,000 per week lifestyle.
  
  
• HSBC Banker Kills Self, naked, with a belt, in a five star London hotel.
  
  
• Big Kahuna Bam, focusing on President Elect Obama's one week vacation in a $9 million oceanfront home in Hawaii.
  
  
• Tough Times Put More Pets in Shelters, as folks punt their pets to save money (don't worry Phoebe, we'll find a way to fill your bowl.

Pepe Depew offered at the beginning of this year that "If the '90s were about wealth, accumulation and consumption, 2008 will continue the mean reversion toward something altogether more austere, if not more sensible. Debt reduction and the rejection of (and guilt projection toward) materialism will continue what began in 2006 and 2007 as meditations on not just doing more with less, but doing less... period."

Prescient indeed.

While I have you, I will also draw your attention to the (as it stands) violation of the S&P uptrend that has been in place since Thanksgiving. Again, it's thin enough for any one agenda to push this tape around but as I see it--coupled with the earlier slippage in "would be" upside vehicles such as Google (GOOG), Apple (AAPL) and Baidu (BIDU)--I wanted to make sure it's on ye radar as well.

Finally, I continue to sniff around crude proxies, with likely vehicles including the USO and DIG (again, nothing done yet). I dabbled in the DXO for some time but it moves less than Paulie... and Paulie doesn't have to move fast for anyone.

As always...


R.P.