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Monday Morning Quarterback: Sovereign Soup!


It's feast or famine as hunger pains emerge.


It's a beautiful morning. Roger Federer has staked his claim as the best tennis player of all-time. The Lakers and Magic are playing inspired championship ball and with summer officially upon us, global indices are sprinkled with profitable seeds of green.

In fact, I could have sworn I saw a few people actually smile as they took in the seasonal sun.

It's quite amazing that a few short months ago, talk on the street was of a systemic collapse of capitalism and the end of the world as we knew it.

For those who warned of such a seismic seizure well before the wheels wobbled off the wagon, that panicky point of mainstream recognition was cause célèbre to cover shorts and for a few brave souls, initiate a stroll through Matador City. Those who were a half-step behind, however, still seem to be playing ketchup.

In September 2008, we offered that one of two unfortunate outcomes must occur as $871 billion in debt came due into year-end.

Either the cancer that started in the homebuilders, spread to the financials and consumed "financials in drag" (such as General Motors (GM), General Electric (GE) and Ford (F)) eventually infected retail, technology, credit card companies and commodities-a stair-step, albeit painful, destruction of debt that would eventually allow for an "outside-in" recovery-or we would suffer a car crash where credit seized, markets froze and social mood dramatically shifted as we came to terms with the new world order.

Fast-forward to today. Trillions upon trillions of dollars have been shoveled into the free-market furnace with hopes of burning off societal excess and buying time for a legitimate recovery to rise from the ashes. That very perception-the avoidance of financial Armageddon-was enough to spark the sharpest bear-market rally in history and coincidentally collapse corporate debt spreads.

It would be an absolutely astounding story, one of the greatest comebacks in the history of mankind-or manmade recoveries, as the case may be-if it wasn't for that small dose of reality nestled in the back of the market charts.

You see, while stock doctors and financial chemists effectively avoided the car crash scenario in the marketplace, the sad truth is that the global machination is still consumed with cancer.

Don't shoot the messenger and please know he sincerely hopes he's wrong,

Sovereign Symptoms

Last week, we spoke of the Eastern European Domino and offered that in an interwoven world, you're only as strong as your weakest link. The stream of consciousness went something like this:

1) Cut a hole in the box. Two, put... oh wait, that's a different stream of consciousness, although one that warrants five minutes of your time as a little levity goes a long way.

Let's try that again...

1) Latvia becomes the first EU country to face a sovereign debt crisis after failing to sell a single bill at a $100 million treasury auction.

2) Fears begin to manifest that fresh storms brew in Eastern Europe as capital flights test currency pegs and credit default swaps widen in the region.

3) Money flows into the U.S. Dollar as a safe haven (imagine that!).

4) Asset classes will trade opposite the greenback and it the dollar rises, equities will get tagged.

5) S&P 950 resistance looms large above.

Why do I bring this dynamic to the forefront of the Minyan consciousness this morning?

First, The Republic of Ireland's rating was cut by the S&P this morning and talk is that the U.K. may not be far behind (their outlook was recently cut to negative). Second, the Polish Zloty has extended its decline vs. the Euro after a bond sale was canceled and third, Reuters is reporting that while EU bank support "schemes" are effective, more will likely be needed.

All of this "is what it is" and "won't matter till it matters" but what I would like to know is what will happen when the finds itself in a similarly sticky currency crosshairs?

A downgrade of U.S. Debt? The United States of America? The standard bearer of "full faith and credit" since Moody's assigned the rating in 1917? Some would offer that the ratings agencies lack the "Mott's" to do such a thing to which I will respond, "Do the ratings agencies have any credibility left anyway?"

In other words, it's one thing to play football against a formidable opponent but entirely different to try to run plays while an earthquake seismically shifts the playing field (world reserve currency) under your very feet. I don't claim to have the playbook, Minyans, but it's probably a defensive formation we would be wise to consider.

Food for thought as we ready for the first fifth of our freaky week.

Random Thoughts:

  • As shared in The Revenge of Eddie Mush on Friday, I faded (sold) the economic data and covered the meat of my intraday exposure before I stepped out for an afternoon business meld. I enter today light, tight and ready to fight.

  • While I have a sense of what 2009 will look like, the destination we arrive at pales in comparison to the path we take to get there.

  • I'm trading with a scalpel rather than a sword and while I won't make as much as I otherwise would (if I'm right), I understand that opportunity cost is the other side of discipline.

  • Pishaw, what's another $30 billion when it comes to a pension shortfall?

  • Is Footloose the last role Kevin Bacon played that wasn't "dark?"

  • Memoirs of a Minyan-my first person account of the false idolatry of money and lessons learned through a Wall Street career-rolls out Wednesday, beginning an 18-week eBook I sincerely hope Minyans enjoy.

  • The "master betas" (Google (GOOG), Amazon (AMZN), Research in Motion (RIMM), Baidu (BIDU)) have acted like Viagra to flaccid fund year-to-date performance. Keep an eye on that complex as it feels crowded to these old eyes (but respect, always respect, both sides).

  • You wanna see the definition of a negative trendline? Check out this prickly puppy in the SOX. Until that line in the sand is crossed, rallies are made to be sold.

  • Have you ever wondered why there aren't A.D.D dirty talkers? "Oh baby, yes baby, right there baby.... oh look, a penny!"

  • Good luck Minyans and remember that profitability begins within!


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