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A Clap of Thunder


If the debt bubble has indeed burst - as I believe it has - we're still in the first inning of that game.


Thunder only happens when it's raining
Players only love you when they're playing
(Fleetwood Mac)

Someone once said don't hate the player - hate the game. But when the game consists of so many massive players, you sometimes can't help but wonder what the difference is.

Following yesterday's tried, tested and true rally, the mainstay averages are amazingly up for the month of August. We can debate seven ways till Sunday whether they should be higher but at the end of the day, price is the ultimate arbiter of opinion.

By now, you know the forces du jour. To the left, we've got the 800-lb gorilla that is the credit crunch. To the right, we've got elephants in the room that are the global central banks. They've nitpicked every tick with the rest of the world watching in wide-eyed wonder as the grand experiment unfolds.

I was talking to some of my bullish brethren yesterday and they opined that the "purging" of the mortgage abscess was "cleaning the sheets" much like the tech write-offs did after bubbles of yore. I listened intently - I always wanna hear the other side of my trade-before offering that the former storm occurred after the flush. Big difference. Huge.

The debt bubble was fueled for many years before entering the "blow-off phase" in 2002. While we've enjoyed the benefits of cheap credit, the strains on the system have been cumulative. They won't magically disappear - systems and cycles don't work like that-but they may take some time to manifest.

If the debt bubble has indeed burst - as I believe it has - we're still in the first inning of that game. Focus your lens on the context of time and you'll likely see opportunities (both ways) with more clarity. And take a deep breath, Minyans - we've got a long road ahead.

Random Thoughts:

  • As it relates to the "curious bid" in the S&P futures yesterday, a well-informed friend informed me that the Government of China was buying the S&P futures. I don't have first hand knowledge (I didn't work the order) so please treat this subject with care. Still, it fits in the context of the transfer of wealth and jibes with other anecdotal investments such as MGM Mirage. Hard assets, paper assets, real-estate - they're all fair game as China chews threw their surplus.

  • Bank of America and Countrywide? A few quick thoughts:

    • The CFC terms were very aggressive so while $2 billion is a good thing no matter how you slice it, we've gotta wonder how desperate they were to agree to those terms.

    • Bank America, already a massive presence in the California real-estate market, is effectively doubling down on that bet.

    • And suffice to say after the MBNA acquisition, it's already got a fair amount of exposure to the consumer.

    • While we've had some good-natured fun with CFC CEO Angelo Mozilo, I gotta give him snaps for being as forthright as he was months ago when nobody wanted to listen about how bad things were in the space.

    • Regarding the context of time and price, front-month volatility in CFC should get squashed on the opening as they've effectively been given a lease on life (pun intended).

  • Has psychology shifted such that no news is good news? And is that what Boo wanted to see as he hums his Marley and waits for Imelda?

  • I've been fading and trading from the short side, selling rallies, nibbling on dips and using BKX 111.50 as my defined risk stop. The ticket is still open, as they say, as we edge our way into the holiday-thinned fray. Stay tuned to The Buzz for real-time updates.

  • We were eyeing metal equities last week as they were seemingly being liquidated by a large Boston fund. PAAS and SSRI were both sharply higher yesterday (after holding long-term trend lines) and they remain on our radar.

  • Picking the brain of one of the smartest Minyans I know (he used to run global strategy at a major sell-side firm), he offered, when pressed for an opinion on the markets, that "It's all about spillage-if the consumer melts we're toast. If they hang in, we end the year up 10% higher from here."

  • Hit 'em hard Minyans and be mindful that traders are starting to skip town. That should add to the illiquidity, particularly given the continued sense that alotta desks (funds) are trading "short gamma".

  • Don't know what that means? It's all good- that's why we're here!


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