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Random Thoughts: Positioning for the FOMC

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Watch for the winds of change at 2:15 pm.

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Editor's Note: This compilation of Buzzes from today was posted in real. It's being reublished here for the benefit of the Minyanville community.

Gate Sniffage! - 9:58 am

  • Stepping out of the abyss, I've made some sales in Wachovia (WB), JP Morgan (JPM) and Citigroup (C) into the pre-FOMC push. I'm still there, I'm simply not as "out-sized" as I was yesterday as we tickled BKX 60.

  • Why? 1) Discipline and 2) the FOMC is always a tale of two tapes. I was choking on my overage yesterday and I'm back to a more manageable posture. The relative size of my bank bets are in the order listed on in the bullet above.

  • Barclays (BCS) is up six percent following its capital raise. The reaction to news is always more important than the news itself.

  • Weak knees today include the cyclicals (Boeing (BA)), MBIA (MBI), American Express (AXP) and Research in Motion (RIMM). If the worm turns, these names should squirm.

  • Talk about dancing between the elephants. Jeezums.

  • You're not a bug, are you gnat? Not sure, but there's something floating around these days, remnants of my birthday food poisoning. Nice, eh? A little forced diet as we edge through the hump!

  • Slammin', Yo--I'll be back.


Black Card? Pishaw! - 10:15 am

File this under "you can learn a lot just by watching" but I'm not diggin' the action in American Express (AXP). Given the technical importance of the $40--and in the context of my overall risk profile, which is skewed long financials at present--I picked up some downside puts in the name.


Click to enlarge


CEO Ken Chenault said this morning that, "so far this month, we have seen credit indicators deteriorate beyond our expectations." So, there's that.

Part spec, part hedge, all trade and as always, never advice.

Answers I Really Wanna Know... - 10:58 am

  • Why can't I shake the image of Dick Cheney standing on an off-shore oil rig with a "Crude $135: Mission Accomplished!" banner behind him?

  • Does that make me a tree-hugging liberal or am I simply an honest observer?

  • Is this the (cough) "easy" bounce in the banks?

  • Or, given that they've dropped 50% straight into decade lows reason enough to let 'em run?

  • When in doubt, trade "in between," right?

  • Why don't we ever talk about--or trade, for that matter--US Bancorp (USB)?

  • Pare more calls in Citi (C) and JP Morgan (JPM) or buy more American Express (AXP) puts? (Both)

  • Has anybody figured out the difference between Bok Choy and Baby Bok Choy?


Lunch Meat! - 12:35 pm

  • Minyan Skins asks "Toddo, what happens if the FOMC cuts?" My response? It's not happening--they've been posturing higher rates (likely at the urging of foreign central banks) and a snip would crush their Street cred. IF they did? Sell 'em with both hands.

  • The American Express (AXP) news speaks to how the credit conundrum is moving up the food chain, from green to gold to platinum to black. My sense is that the $40 level is akin to General Electric (GE) $32 in terms of technical importance.

  • In terms of my book, I've pared significant exposure in the financials, which may again prove to be premature evacuation. I've still got upside merchandise in the group--most notably through Wachovia (WB)--but now I've got some downside gamma against it (AXP).

  • There's no shame in admitting it's hard and some value in understanding that hindsight will offer 20/20 clarity. Proactive patience remains on of our staunchest allies.

  • Through the lens of our four primary metrics, caution is still warranted and risk remains high.

  • That doesn't mean we can't rally---the organic 2:1 split by the BKX has, to some degree, priced in the pain. The question now, I suppose, is whether we're in for a recession or something more depressing. I'm not pressing--nor am I stressing--but the last thing we can do when trading is pure guessing.

  • Sorry, I've still got remnant rhymes in my crowded keppe. Prolly explains why Dr. Seuss never traded, eh?

  • Breathe, Minyans, this day promises to get entirely more interesting by the time thy closing bell tolls.


Pete and Repeat! - 12:55 pm

Reviewing some notes for tonight's Happy Hour, I realized that the more things change, the more they stay the same. Some takeaways from The Office of Redundant Redundancy:

  • Liquidity will be thin and volatility fierce on either side of the 2:15 announcement. Keep that in mind if you're trading and reduce the size of your positions in kind.

  • The first move following the FOMC's announcement is typically the false move.

  • The path of maximum frustration in equities may include a false rally before supply begins to fill in. Remember, the BKX officially "broke" at BKX 75, which is 15% higher than current levels.

  • The rotation out of commodities could well continue, particularly if the dollar catches a rally on the perception of hawks. Again, I understand the pickle we're in, I just don't think tighter money is a solution during a credit crunch.

  • The oil drillers and gold miners may have double jeopardy as a function of underlying commodity weakness and retail traders often using them as a proxy for exposure to the space.

  • The financials enjoyed a relief rally after the market machination didn't completely seize up. At a point, investors will shift their focus to the massive issuance in the sector and its dilutive effect on earnings. (This is verbatim from April 30th, but it still rings true).


R.P.

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Positions in WB, JPM, C, AXP
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