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Monday Morning Point Guard: Bulls Look To Continue Run


A bottom may be in place.

"I've seen you guys can shoot but there's more to the game than shooting. There's fundamentals and defense."
- Coach Norman Dale, Hoosiers

Good morning and welcome back to the Madness of March. Following last week's come-from-behind victory by the Bulls and with some NCAA upsets in our back pocket, it's time to tip-off for a fresh five-session set.

Before we storm the court and make our mark, we need to make sure we have our priorities straight. Minyanville Management has obtained a copy of Ben Bernanke's "Bank Shot Bracket". We'll be announcing the regional winners each day this week with the final four and championship game held on Friday. One lucky participant will win two tickets to NCAA Basketball Championship in San Antonio, Texas on April 7th, 2008.

These are tense times in the world and Minyanville appreciates that you choose to share your journey with us. As such, we aim to give back to ye faithful that comprise our community (if you're reading this, that means YOU!). Sometimes that means the important stuff, other times it'll mean some fun stuff. At the end of the day, it's about keeping it real, doing it right and finding our way.

It's our sincere belief that these propositions are not mutually exclusive.

On to the Market Stuff

What a difference a week makes, eh? Seven short days ago, the wheels were wobbling on the financial wagon. The great debate suddenly shifted from the conventional definition of recession to the ability of global capitalism to operate at all. The pieces of a bottoming puzzle, as we opined at the time, has seemingly fit together for a trade.

The question, quite naturally, is what now?

The weekend press, as you might expect, turned an optimistic corner following the reaction to news (which is always more important than the news itself). It's been a brutal string of seasons for financial assets and it's human nature to look for lights at the end of the tunnel rather than at the train they're affixed to.

Uber-columnist Michael Santoli of Barron's highlighted several surveys that suggest higher prices still. Their proprietary confidence indicator is pegging risk aversion at levels unseen since 2003 nadir, Investor's Intelligence bearishness is at 5-year highs and the Merrill Lynch fund manager survey finds the greatest number of asset allocators overweight in cash in it's entire 10-year history.

All of these, coupled with the double bottom in the S&P (followed by a higher low), support the notion "a" bottom (as opposed to "the") bottom may be in place in a normalized marketplace. The question, I suppose, is whether we're in a normalized market that can draw on past performance to extrapolate future results.

Time Horizon

Into the Bear Stearns (BSC) abyss, I became constructive on the financials-and by extension, the market-for the first time in quite some time. I didn't expect the vicious rip to happen as quickly as it did-I foresaw a more prolonged process of price discovery-but I traded from the long side and flattened out into the rally.

I'm open-minded to the notion of further gains, perhaps back to the S&P 1380-1405 zone. I don't, however, believe we're out of the woods. While the banks may have turned a trading corner, the other side of zero percent financing looms large and the consumer, at 70% of the GDP, is already up to their eyes in debt with $440 billion in mortgages due to reset this year.

The wildcard, as I'm sure you now know, is government intervention and the socialization of markets. We've been monitoring this progression for years and can debate the merits until we're blue in the face. We've arrived at a point, however, where these policies are like the Iraq war. You may not agree with the initial occupation but now that we're there, we can't suddenly pull out without profound consequences.

But when does the escalation end? Chatter abounds this morning that global central banks are actively discussing the "mass purchase" of mortgage backed security assets as a way to bolster prices in the marketplace. This is very much an extension of the practices and policies that took place following the implosion. Buy time, the theory went, with hopes that a legitimate economic recovery will take root.

The only difference now is that, as a function of the cumulative imbalances, interwoven derivative machination, global implications and consumer dependency, the stakes are now much, much higher.

Dance while the music plays, Minyans, but be sure to find a seat when it stops.

Random Thoughts

  • As discussed on Friday, the "easy" trade from crude $110 was back to par ($100). As such, I covered up my driller shorts and will keep my nose to the ground as we sniff out our wishbone world.

  • Barron's, in its cover story on the bottom being in for the financials, offered that the smelting in gold last week was a sign of rising confidence in the overall market. There are two other alternative scenarios.

  • This is a healthy pullback in the context of a broader, bullish cycle.

    • The Phantom of Deflation is vying for our attention. When those whispers finally speak volumes, we'll find that lower commodity prices are endemic of issues, not resolve.

    • Keep an eye on the (potentially bullish) reverse dandruff in the transports. If this flakes higher, it'll be another feather in Hoofy's headdress.

  • I continue to believe that consumer non-durables and pharma will be "places to go" in a slowing economy. It's just that, you know, I'm typically early.

  • And just like that, the population of MinyanLand pops through 25,000. If you haven't turned your Mini-Minyans on to this completely free virtual community aimed at teaching children earning, spending, saving and giving, it's time to get involved!

  • Last Thursday, I offered that "there is no shot the Bear Stearns deal goes through at $2." True dat--I did everything but buy the stock!

And Finally, Some Perspective

Following last week's sudden and sad loss, I shot down to Baltimore to see my brother Adam, enjoy Faith's fantastic cooking and play SuperUncle to Maia and Bradley. It was just what the doctor ordered, particularly as they buried their precious pooch the day I arrived.

As Minyans are there in good times and bad, I wanna share the three occasions that I smiled so hard that my face hurt.

1) Being told the story that Brad, my 7-year old nephew, called his teacher a "Hottie" in the middle of class. Evidently, she had to turn around so the other students wouldn't see her laughing.

2) Enjoying an old-fashioned S'Mores on Saturday night while attending a bonfire with my brother's fellow firemen. There's something about eating chocolate, graham crackers and hot marshmallows in front of a crackling smile that makes everything alright in the world, if even for a while.

3) Taking Adam to school on his brand new Ping Pong table, winning our match play marathon 20-3. I now know precisely how Roger Federer must feel when he steps on the court.

Good luck this week, Minyans, let's hit our shots and play strong defense as we find our way to the Final Four. I'll see you on the Buzz.

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