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Random Thoughts: The Moment of Truth Approaches


Credit Default Swaps are showing signs of stress.

  • As discussed in my morning missive, March Madness might make February look like a walk in the park. At the heart of the matter is the treatment of AIG (AIG) credit default swaps, which was surprisingly glommed over in the morning news.

  • I would also draw your attention to General Electric Credit Corp (GECC) CDS and Berkshire Hathaway CDS, which are also showing signs of stress.

    Click to enlarge

  • If Ben Bernanke is indeed a contrary indicator, is it almost time to dust off the buy tickets?

  • I'm on a Nirvana kick of late. Hey, it could be worse.

  • Note the homies, which are again showing signs of relative strength. They were the first sector to lead the market lower and the fact that they're 15% higher than the November lows is worthy of a mention.

  • Other dry eyes in the Red Sea ? Dell (DELL), Cisco (CSCO), Intel (INTC), Apple (AAPL), McDonald's (MCD), Qualcomm (QCOM), VMWare (VMW) and Dow Chemical (DOW).

  • On the bright side, we've got 48 hours of Jack Bauer tonight and it just doesn't get any better than that. Well, if Keira Knightley made a cameo-that would be better-although I doubt if FBI Agent Renee Walker would react well to that.

  • S&P 600 used to sound really, really low. Now, we're a handful of points away from a six-handle.

  • I entered today's session with a flat pad and dry powder (small, placeholder positions in Dryships (DRYS) and Yahoo (YHOO) notwithstanding). I hadn't pulled any triggers until nibbling on some SSO when the S&P was down 28 to have some exposure. A tight, trailing stop on this puppy will keep that risk defined.

  • I almost bought some Research in Motion (RIMM) and BHP Billiton (BHP) as well but opted to watch the tone and tenor a tad more.

  • If we get to S&P 600 on a bungee-which would likely be caused by a catalyst (General Electric (GE)? General Motors (GM)? Jack Bauer?)-I'll not only deploy 25% of my long-term capital, I'll likely be "all in" for a short-term trade as well. Yes, that's 14% away but 14% isn't what 14% used to be.

  • I just pulled up a chart of the VXO (angst index) vs. the last time the S&P was trading around these levels. Please note that while the S&P is now below the November lows, the VXO is more than 50% lower than it was the last time we were here.

    Click to enlarge

    Complacency? Yawn... it feels that way.

  • I'll again say this because it's incredibly important that it's said-FINANCIAL STAYING POWER-when the dust settles, Minyans, there will be profound opportunities. Our goal, as a community, is to be in a position to prosper when they arrive.

  • Keep your head up Minyans and remember discipline over conviction, risk management over reward chasing and the ability not to trade is often as important as trading ability.

And Finally, Some Wisdom From Minyan Peter:

"With everything going on out there, I wanted to highlight that David Moffett, the head of Freddie Mac (FRE) resigned today. Mr. Moffett had in his career been CFO and Vice Chair of USBank. While Washington will spin his departure as Washington will, I would offer that he is not the kind of person we should see leaving Washington at a time like this.

But I can't say that I blame him for leaving. Being twisted on a salt-water taffey making machine would have to be more pleasant that trying to run a failing private-public enterprise reporting to a Board of Directors, the House and Senate Finance Committees, OFHEO, the Treasury and the White House. Let alone having every one of your expense statement subject to Congressional and CNBC review. No man can be the slave of two masters, let alone 600."
--Minyan Peter, Buzz & Banter, March 2, 2009 (position in spy).


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