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Random Thoughts: Capitulation Now?


Is it time to surrender?

Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also Mickey Mantle Won't Pay Our Rent, Dusting Off the Bull Costume and Miso Horny?

Webster Fall! - 11:08 am

ca-pit-u-la-tion (noun):

1) The act of capitulating, or to surrender unconditionally.

2) To give up resistence.

So you say you wanna be a trader, eh? As we edge through this process of price discovery--the same one we've been warning about for months--the here is now in terms of capitulatory process. Remember Minyans, capitulation is when nobody wants to talk about it anymore. It's when you poo in your pants (a.k.a the "diaper effect"). It's when you don't care where you sell stock--you just want to GET THE HECK OUT!

I'm not smart enough to know how long this particular process persists but I'm seasoned enough to smell fear. It's here, baby, and it's everywhere. Indeed, we've been eyeing VXO 70 for the last month and it seemed like a pipe dream. As I scribe this latest vibe, the VXO has registered a high tick of 66.30.

To be sure, there's nothing magical about that potion. And the potential for continued forced selling exists, particularly if the counter-party credibility of credit default swaps evaporates. Still, crashes are--by definition--tail (outlier) events and while I'm on record saying that the probability of a global meltdown was much higher than most anyone else expected, the trader in me has flipped lids into these skids.

That doesn't make it right, mind you, but all I have is my name and my word.

We got the second dip, consistent with what we were looking for this morning. I continue to operate with two legs in my metaphorical bull costume, or 50% conviction on the long side.

As always, I hope this finds you well.

REDRUM! - 12:09 pm

I'll tell ya, it ain't easy being a contrarian. I put on a brave face into the morning muck and was immediately deluged with "Whataya nuts?" emails. Friends--I get it. I see it. I respect it. And I know that it's a process--not a point--of price discovery. Now, I'm trading it.

While I believe that we're in for a long, hard road, I'm intent on making money on the path towards the ultimate destination of debt destruction. Some top-line vibes:

  • I've made a career out of taking the other side of emotional extremes. While I'm not drawing any lines on any beach head, I'm "hearing" that others are screaming "get out now, we're going 20% lower!" Perhaps, eventually, but the path of maximum frustration rarely rewards emotional decisions.

  • Minyan Neal asks "If you're expected a global coordinated rate cut, why would you buy GLD puts?" My off the cuff response was "Just trading" and indeed, into the gold pullback, I've unwound 20% of the risk (and will continue to do so). So you know, those puts--bought when gold was up $40-something--was a pure play on meltdown risk, where there's nowhere to run and nowhere to hide.

  • Of all my trading tries--including the QLD, Transocean (RIG) and Weatherford (WFT)--Weatherford in the teens is perhaps my favorite bet (and one I'm willing to give some room).

  • Other names I sniffed at this morning? Baidu (BIDU) near a deuce ($200), Apple (AAPL) (but I held off when I pulled up the long-term chart, which suggests selling into $115 rather than bottom fishing) and Schlumberger (SLB) (it's best in breed but I'm already represented in that sector).

  • What didn't I consider touching? The consumer non-durables, which was a top ten 2008 (and profitable) theme for me but a sector I cooled on into the bailout package. Given DeutscheBank dumped Coca-Cola (KO) today, I would surmise that others are waking up to the risk after their sprint to 52-week highs.

  • Breathe, Minyans, this too shall pass. The onus is on us to make sure we're there once it does. Discipline over conviction as we find our way.


Positions in RIG, WFT, QLD, GLD

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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