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The Bank America Love Triangle


In these situations, someone always gets hurt.

The summer season has officially arrived. Baseball is in full gear, trading volumes are reed thin and city slickers are chillin' in the Hamptons; in the most austere way possible, of course.

We've talked a consistent tape story for the last two months as the S&P slithered in a sideways channel. You know how we're approaching the market, step by step, and offered that if Hoofy was gonna bust a move through the all-important S&P 950 level, his best window of opportunity is over the next week.

The financial script is written daily with fresh topics of conversation. The item that continues to pique my interest is the misguided Ménage à trois between Bank America (BAC), Merrill Lynch and the government. With that love triangle again heating up, I would like to circle back to some thoughts offered as we entered May:

"The back-and-forth between embattled Bank of America CEO Ken Lewis, Federal Reserve Chairman Ben Bernanke and former Treasury Secretary Hank Paulson has massive implications for the psychology surrounding the government's role and responsibility in the capital market structure."

As Minyanville offered in August 2007, "The Federal Reserve attempted to buy time on the back of the tech bubble with fiscal and monetary stimuli that encouraged risk-taking, reward-chasing behavior."

"While debt is front and center, credit of a different breed-credibility-has emerged as the issue at hand. If and when investors begin to perceive that central banks are no longer larger than the markets, a crisis of confidence will ensue."

In our assimilation of the four primary market metrics (fundamentals, technicals, structural and psychological), that last leg-general perception-is the trickiest prick of them all. All the government regulation in the world, with all its muscle and moxie, cannot shift what is perhaps the single greatest force in the universe... that of free will.

To be clear, this is a process not a point. We saw a real-time example of this last year when a money market fund broke the buck and triggered a 46% cascade in the S&P. There were other conditional elements in place-which were discussed in Minyanville before they "mattered"-and I would argue many of them still exist, contrary to the popular opinion that the worst is behind us.

I learned a long time ago that an opinion should never get in the way of making money. My stylistic approach of contextual risk definition is an extension of that. That's why we chew through our process in real-time on the Buzz & Banter and why vicarious learning is critical to our mission. There are no blanket answers or Utopian sound bites. It's dynamic, fluid and yes, quite difficult.

My point-and yes, there is one-is that shenanigans surely took place when bearded socialism stepped out from the shadows. My personal view is that this is a story of corporatocracy gone awry and egos run amok.

You don't think Ken Lewis got 'the call' when CountryWide Credit was in trouble? That dynamic would never have been discussed-much like the invisible hand was never discussed-until it was absolutely necessary. Now a man's livelihood and reputation are on the line and he's got nothing to lose if the ace falls from his sleeve.

Pay attention to this reality television series, my friends. In these types of situations, someone usually gets hurt.

Our goal, in Minyanville, is to make sure it's not you.

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