Monday Morning Quarterback: The Fears of Those in the Know
On Friday, we got word that the dynamic duo of Ben Bernanke and Hank Paulson were on the case.
"The Autumn wind is a pirate blustering in from sea. With a rollicking song he sweeps along swaggering boisterously."
It's December in
For those navigating the flickering ticks, this has been a particularly interesting juncture. We've got an 800-lb gorilla that is the global credit crunch to the left and elephants in the room in the form of central banks and government agenda to the right. They've been playing tetherball since the summer and the stakes continue to heighten as we edge into year-end.
We can talk about the socialism of Wall Street and what it means but at the end of the day, it's an academic (albeit extremely important) discussion. Investors want to know what the tape will do so they make their list and check it twice. How they play and what they're paid will go a long way in dictating the jingle in their holiday season jeans.
Last week, after a Monday sale that left the mainstay averages 10% below their peak-the conventional definition of a correction-the bulls found a bid and rallied in kind. The initial lift was a function of an oversold condition in the face of widely known risks and made a ton of sense in the context of a counter-trend bounce. The question, quite naturally, was whether it could and would continue given the mounting credit pressures.
On Friday, we got word that the dynamic duo of Ben Bernanke and Hank Paulson were on the case. The former opened the door for further rate cuts while the latter offered an aggressive plan to freeze rates to sub-prime borrowers and sidestep the adjustable-rate freight train. This, on the heels of the proposed super-conduit rescue plan, tells us all we need to know about the fears of those in the know.
For my part, after trading from the long side for a week or so, I punted my remaining rentals into Friday's gap opening and bought index puts as the S&P probed 1490. I'm playing smaller than normal as a function of my incessant schedule and looming unknowns but I will, as always, scribe vibe in real-time as my eyes see and my gut digests.
These are interesting times indeed, Minyans, so trade wisely as we fit the pieces together.
At the MIM events you said (and I realize this is not verbatim) that foreign investment in the U.S. would make you more positive on the market. Does the recent investment in Citigroup (C), Bear Stearns (BSC) and now Activision (ATVI) show that foreign investors have figured out a way to invest in the U.S.? Does that change or modify any of your longer-term views?
Excellent question and one that I've been talking about with those I respect. Best I can guess, the transfer of wealth could indeed provide a bridge but I'm unsure of how stable it is. It comes down to relative magnitude. The notion that foreigners can save US asset prices is a stretch but they can likely buoy them and, in select situations, absorb them.
I do find it interesting that we haven't heard a peep from the government regarding recent stakes in our financial institutions, which can be perceived as a positive (moving away from an isolationist mindset and thus sustaining the bridge) or negative (an act of desperation).
Either way, and to answer your question, I continue to have deep-rooted big picture concerns that we're in the early innings of a multi-year debt unwind but respect this latest twist as it relates to the timing of the comeuppance.
Best of luck,
I just came across this study on the deterioration of the American middle class. Given that this is a frequent discussion point for many professors, I thought I'd share it. A couple points from the press release about the study:
Twenty-one percent of middle-class families have less than $100 per week ($5,000 per year) remaining after meeting essential living expenses. These families are living from paycheck to paycheck with very little margin of security.
More than half of middle-class families have no net financial assets whatsoever - that is, no financial assets or debt levels that exceed their assets.
Only 13 percent of middle-class families have sufficient assets to meet three-quarters of their essential living expenses for nine months, should their source of income disappear.
It's a pretty compelling read and, in the context of ongoing threads regarding the "haves" and the "have nots", I felt it would be of interest.
I recently shared that I sensed a bounce in the U.S. Dollar and had cooled on energy and metals (preferring, instead, to look towards pharmaceuticals and consumer non-durables). I further spied potential dandruff in the XAU, which seemed to fit this train of thought. Professor Lance Lewis, who is quite good in the space, offers the other side of that trade.
My two favorite football teams are the Oakland Raiders and anyone playing the dreaded donkeys. In that vein, and taking my gains where I can get them this season, yesterday's victory over Denver made my otherwise unbearable NFL season worthwhile.
Perspective Check! The WSJ reports that there were 30 deals in November that raised $7.5 bln (vs. 28/$8.1 bln in Nov '06). However, 11 deals were delayed or scraped, the number all year. Observers expect this month to be slower than last December, when 28 companies raised $4.95 billion.
I'm all for giving this season (as evidenced by the 300+ Minyans who will be attending Friday's Festivus for Children's Education) but I knew how, I would short holiday music with furious vengeance.
So, OPEC won't increase crude oil supply to meet rising demand? I wonder what Hoofy and Boo would say about that?
How long will Wall Street continue the research functionality given its lack of effectiveness coupled with the fact that it can no longer be underwritten by investment banking revenues? And would this really come as a surprise to anyone?
In Minyan Housekeeping, this will be a nutty week as we digest the beta launch of MV Kids and The Exchange while preparing for Friday's Festivus. We're working hard to make certain that the Minyanville Experience is consistent with the high standards you've come to expect. Thanks, in advance, for your patience and understanding and best of luck as we truck through the muck!
Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!
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