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Freaky Friday Potpourri: The Margin for Error Thins


The Fed has put itself in a sticky situation.


Good morning and welcome back to the swarming. On the heels of another nutty strut, we pull in for the final fifth of our freaky week. Again, there's lot's going on-not the least of which is the looming requisite respite-so out of respect of our collective time constraints and an eye towards balance, let's dive right in.

Being Needled From Abroad?

I was pinging with Mr. Practical yesterday and we had the following exchange. We share it with ye faithful in the spirit of community.

Mr. Practical: Yields are upticking. Fed Fund Futures are implying a rate hike in September.

Toddo: Yeesh, talk about a death knell. That has "foreign influence" written all over it.

Mr. Practical: Central banks may have given notice to Ben that if he doesn't raise rates, the dollar is toast. We should remind Minyans to read Pin Prick. It's as relevant today as it was then. Instead of foreign central banks abandoning the auction, they're giving him fair warning.

Toddo: Consider it done Yo.

Aw, Pair!

No, not Elin, although she's pretty minxy. I'm talking about the "short oil with a long crude kicker" trade that I've been trading around.

As discussed GLD $85 is sorta freaking me out and it's trading there now. How did I reconcile my gut is that gold breaks lower vs. keeping it as a "geopolitical hedge" against my energy bet? Simple, by paring the pair.

On Tuesday, I legged into the trade by getting short crude in the morning and then hedged it with some Gold Fields (GFI) in the afternoon. All in all, a good day.

Wednesday, upon further review, I swapped GFI for some GLD (in hindsight, I shoulda left it alone) and as I got wish-boned, I layered up the short side of the crude bet.

Yesterday, as crude slipped hard in the early going, I took down both sides of the bet with one eye on the technical level and the other eye on Tom Petty.

What else? I just took a flier on some downside paper in the S&P as it tickled 1350 (with a stop on the other side). I've still got some paper on, although I pared it considerably as a function of discipline. And yes, this was all discussed in real-time on the Buzz & Banter.

My gut is that something is afoot in Lehman (LEH)-a take-under in the teens is my best guess, but for all I know (and that's not saying much), the market could perceive this as another kick-save a la Bear Stearns. As such, I'm trading smaller with discipline and humility as I adapt to this tape.

Answers I Really Wanna Know…

  • If Lehman Brothers was gonna limp into the arms of another this weekend, would its credit default swaps still pop?

  • The answer is "no" as the debt would be assumed by stronger hands?

  • Given our collective perception of where we are in the debt (unwind) cycle, is it a relative disconnect that the retailing index is only 15% off it's all-time high?

  • Relative, say, to the 45% "pullback" in the BKX since last year?

  • Long financials, short retail on an "aw pairs?"

  • How awesome is it that Minyan Bob walked up to Franklin Raines two weeks ago as he was walking out of the 7 pm showing of Indiana Jones at the Mazz Galleria in Chevy Chase Maryland and said "Hey Franklin, Toddo's looking for you!"?

  • Where... the heck... is PETTY?

  • Has the rally that drove oil to a record $139.12 a barrel last week really surpassed the gains in Internet stocks that preceded the dot-com crash in 2000?

  • Can you imagine the mood in Carl Icahn's office right now?

  • Can Stevie Winwood steal the Petty show like he did at Clapton?

  • Are you watching the March low in Apple (AAPL) at $172?

  • Does anyone else get the sense that the conditional elements of a seismic readjustment are in place?

  • Can you imagine how crazy it was on the set of The Brady Bunch?

  • Do we pick anew in Yahoo (YHOO) if and when it fills that gap to $19.25?


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