Of Clouds and Linings
Watching the price action of late has been somewhat surreal, like we've seen this movie before...
"We can always find something to be thankful for, and there may be reasons why we ought to be thankful for even those dispensations which appear dark and frowning."
Good morning and welcome back to the storming. After a wild ride on both sides of the tide, we power up for this Hump Day pup with one eye on the tape and the other on the clock. Indeed, in seven short hours, the flickering ticks will stop bickering and we'll turn our attention to pigskin and poultry.
Thanksgiving. An opportunity to sit back, unleash our top button and reflect on the bounty of our blessings. It's also a time for family, which might help explain why Uncle Freddie (FRE) and Aunt Fannie (FNM) showed up yesterday drunk as two skunks. Their stupor spread throughout the tape and, while it was contained by some late day stuffing, the hangover continued in
As discussed thoroughly and thoughtfully, I've been cautious and conscious of the big picture blues for quite some time. The percolating pressures have been cumulatively building, masked by dollar devaluation and skewed by the chasm between the "haves" and "have nots." There is no way to avoid the reality of our situation, although we've collectively been conditioned to do so by FOMC vernacular and BLS hedonics.
Be that as it may, trading is a journey best enjoyed by taking individual steps. We entered this year with several themes and I've done my best to stay true to my view, adapting rather than conforming when our thoughts seemed to twist. In many ways, watching the price action of late has been somewhat surreal, like we've seen this movie before if only in my mind.
Given our longstanding discussion, perhaps it was a surprise to some that, after covering shorts on Monday, I flipped my lid and traded from the long side yesterday. The rationale wasn't rocket science. The mainstream media seemed to discover, all at once, that there were issues in the system and was spinning it as breaking news. That, coupled with defined risk in the DJIA, BKX and select efforts (including Citigroup (C)), was worthy of the effort.
As you might expect, the headlines this morning are doom and gloomier, with mortgage meltage, $100 crude, stagflation alerts, consumer crunchiness and world woes vying for mindshare. Yes, it's negative out there but context is important. The mainstay averages are still up for the year (measured by the dollar, at least) and we're a ways away from previous fear fulcrums.
While I might well buy the opening for a trade (please see the Buzz & Banter for real-time analysis), I will remain tight with my risk and disciplined in my approach. This is the definition of dancing between the elephants and there's no shame in admitting it's hard. I may be chicken, stickin' to move rather than layering in, but it ain't cool being a jive turkey so close to Thanksgiving.
One step at a time, Minyans, as we find our way.
The fact that adjustable rate mortgage resets haven't even hit the radar yet is somewhat disturbing. Perhaps the flight to safety staves this off for a while?
Peter Clarke, the head of Man Group, the worlds biggest listed hedge fund manager, predicts that "more than one in ten of all hedge funds will go out of business this year as the rate of failures double." Keep that in the back of your mind as we weigh end-of-day redemption potential.
Why did the market snap into the close yesterday? You mean, other than the path of maximum frustration? Chatter of a government bailout. Oh, you mean another government bailout, right? We've already seen discount cuts, fed fund cuts, overnight capital infusions and SIV super-conduit rescue plans. And, of course, that's just what we've seen.
Minyan Peter offers another lens with which to view "asset class deflation vs. dollar devaluation." And I'll again offer that the fact that both equities and the greenback have been lower does not bode well for the bulls.
We're starting to eyeball capacity for Festivus (two weeks from Friday!) so if you wanna belly up and cut a rug with the professors and your fellow Minyans, step up or forever hold your heels!
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!
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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