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Money Changes Everything

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...if there is less easy money and less confidence, what will power the buyouts and buybacks that drove the recent multi-year advance?

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Money, money changes everything
We think we know what we're doin'
We don't pull the strings
It's all in the past now
Money changes everything
-
Money Changes Everything (Cyndi Lauper)

Frank Lopez: Lesson number one: don't underestimate the other guy's greed!
Elvira Hancock: Lesson number two: don't get high on your own supply.

-Scarface (the movie)

Money is like manure. You have to spread it around or it smells.
-J. Paul Getty


With all apologies to Robert Browning: Ah, but a market's reach should exceed its grasp, or what's a heaven for?

From the Promised Land and Nirvana of 14,500 DJIA just around the corner, from the Armageddon of a DJIA 800-point break in two weeks, from one-trick-pony stock hopscotch of 80 to 100 to 120, to chucking stocks to "Chuckie" concerns about the availability of credit, to an exorcist-like spewing of stocks in a green slime, prime melt-down, from Subprime to Non-Government-inspected AAA, Prime Slime, from complacency to hunkered-down mentality, from remarkable market resiliency to violent intra-day swings, from invincibility to apprehension – what a difference a week or two can make. News that seemed to be baked into the cake suddenly turned rancid. Nah, cycles don't exist, that's just voodoo. It's probably just coincidence.

But cycles of confidence and money make the mare go. Money just doesn't change things; it magnifies and amplifies everything it touches.

Fears of a credit crunch and bursting debt bubble have fueled some of the most pronounced gyrations and fastest markets I can recall in twenty years. There's no way to describe the last half-hour on Friday as anything but freefall.


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The pundits point to Bear Stearns (BSC) CFO's description of the current turmoil in the credit market as the "worst he's seen in twenty years" as the culprit for Friday's carnage. Is that a surprise to anyone in the loop? And these comments hit sometime before the last half-hour meltdown. Moreover, Friday was the third episode of last half-hour extraordinary explosive price action. A week ago Friday saw the market fall out of bed in the last half-hour as well, while last Wednesday witnessed a last-half hour buying spike, which saw the DJIA reverse some 200 points.


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It smells orchestrated to me. It seems to me like a group (or groups) of trading buccaneers is ganging up on the market – waiting for the last half-hour and unleashing a barrage of buy or sell programs to capitalize on an uncertain summer landscape. Call it "Pirates of the Carry Tradin'". It feels like a clique has an agenda and is pushing around a spooked market with a jittery mind-set in the last minutes of the day.

But that's just me – I could be wrong. I could be paranoid. But with so many shoes dropping, is anyone going to stand in front of monumental momentum in the last minutes of a session? Everyone is afraid of the next big shoe to drop. With the S&P closing at a new low for the move, and scoring its first close below its 200-day moving average in a year, and on the heels of a Blue Friday, the Street is on tenterhooks in front of the Fed's regularly scheduled August meeting on Tuesday.


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The Street is on tenterhooks waiting for the fallout in world markets on the heels of Friday's rout.

The Bulls are praying for the Federal Reserve to come to the rescue. But will Hanky Panky Bernanke greenlight another spike of speed into the patient's vein? Perhaps. But first they are going to have to find a vein that hasn't collapsed. Will Bernanke take a page from Alan "All the Money That's Fit To Print" Greenspan?

The bigger question may be if the credit markets have had a heart attack, is more juice, more jack the proper prescription? It may get the patients' ARMs to jiggle, but will it get the patient to stand on its own two legs? Will a shot in the dark give a short-lived knee jerk reaction preceding a dollar Armageddon?

Officially, Hanky Panky Paulson went to dinner in China last week, but apparently he was actually in Egypt: he's in De Nile. Maybe he's just dyslexic, and has a spelling problem. Containment, contamination. Contamination, containment. I get it: if Chicken Little is already skating on the thin ice of a lake of frozen liquidity how could the sky be falling? Viral, spiral. In a cycle, in a pickle.

Throughout the year, Fed policy makers have maintained that they expect the economy to recover and grow, and that their primary concern was inflation. However, given stocks' two-week tumble, all ears will be tuned to whether or not the central bank addresses credit conditions, and whether it hints that it is prepared to ride in like the Lone Ranger and put the Bulls out of their misery. The bigger question is, "Does the Fed possess any more silver bullets? Or are they all in the top drawer in a desk in Beijing?"

The Bulls may be poised for the Fed to do a jack-in-the-box pop-up to save the day with a hint of a cut, but they may get Ben in a Box. The street may be listening for the sound of the Sikorskies revving up, but they may hear "Houston, we've got a problem here".

Even if the markets get a lift from the Fed this week, even though Fed easing has been an elixir of exotic problems in the past, we may not be in Kansas any more, Toto. The bottom line may be that there are multitudes more hedge funds now than there were during the 1997 and 1998 panic attacks. What we are observing is that there more hedge funds unhedged and more hedge funds correlated to each other. In a word, crowded trade. Can you say "crowded Carry Trade?"

Money may make the mare go, and money changes everything, but when confidence is broken and fear heightened, it takes time to repair animals' spirits.

And, if there is less easy money and less confidence, what will power the buyouts and buybacks that drove the recent multi-year advance?

Money changes everything, but everything is timing. The news breaks with the cycles. Things matter when the cycles break.

Until proven otherwise, the cycles from 1907, 1957, 1987 and 1990 that I have referred to in this space should continue to exert their pressure.

My strategy: A week ago Monday, the market recovered from a Friday freefall. If the market "alternates," which is typical behavior, and we see downside follow-through on Monday, an important level to watch on the S&P is 1401/1402.

Why? This level is a full 360-degrees down from July's all-time high. Additionally this level coincides with the February crash day closing low of 1399.05. It is also interesting that this 1400 price level vibrates off the date of August 25, and is opposite to this year's February 22 pre-crash high.


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August 25 and the last week of August is important because it is the 1987 high, near the 1929 high, and also near the return rally test high at the end of August in 2000. Moreover the power of this vibration is proven out in as much as August 25 is conjunct or vibrates off the price of 1553 which was the March 2000 high, and approximates the recent 1556 high this year.

Editor's Note: Want more of Jeff's insight and trading ideas delivered to your inbox daily? Minyanville is proud to announce that we will soon be launching Jeff Cooper's Daily Market Report, complete with Jeff's day trading and swing trading setups. Email Josh Sander to be notified when it launches so you don't miss one report.
No positions in stocks mentioned.

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