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Monday Morning Quarterback: One Shopping Day Does Not a Market Make


Black Friday beat expectations with total sales of about $10.3 billion...


"Well, you know what my dad always said. Having dreams is what makes life tolerable."

Pete, Rudy

Good morning and welcome back to the holiday track. With the gobble hobble behind and December directly ahead, we power up our holiday pup with hopes of sleigh bells that ring and reindeer in bling. Indeed, from Santa to St. Barth, the wannabe wish lists are longer than they've been in quite some time.

The question remains whether the strapped and tapped consumer has money left (read: room on their credit card) and, if they do, they'll still be in a sporting mood once the energy, education, insurance and grocery bills are paid in full. Inflation in things we need, deflation in things we want. It's not a mutually exclusive dynamic no matter how jolly we try to be and regardless of how unfortunate stagflation sounds.

Black Friday, the most watched holiday shopping day of the year, beat expectations with total sales of about $10.3 billion (vs. $9.5 billion last year) and, while average shoppers spent less than they did last year ($348 vs. $360), the market was braced for horrible news and rallied in kind when it failed to arrive.

One shopping day does not a market make, naturally, but there's a potential lesson nestled within those Middle America malls. Bad news (that's not horrible) can rally an oversold tape just as good news (that's not fantastic) will be sold in an extended tape. I offer this thought in the context of the near-term compressed condition that accompanies the mainstream recognition that things are indeed bad.

I also offer it as I read news that HSBC (HBC), Europe's largest bank, will add $45 billion of assets to it's balance sheet by consolidating two structured investment vehicles (SIV's) it manages. Investors in the SIV's will be able to swap those holdings for debt issued by a new company and backed by loans from HSBC. HSBC says it doesn't expect any "material impact" on its earnings or capital strength, according to company sources and as reported by Bloomberg.

Now, taking a step back, this may seem like a large bank is backing potentially troubled loans in their left pocket with cash on hand from their right pocket. And it very well may be. These issues aren't going away and my strong sense is that they will eventually come home to roost. BUT, and that's a big ol' BUT, if perception shifts regarding the recognition of these troubled loans-at a time when many banks are 20-40% for the year-it could conceivably spark a collective upside exhalation.

As Minyans know, I flipped my trading lid last week and in addition to covering some long-standing shorts, I actually began picking away at the long side for a trade. This is the definition of dancing between the elephants and I couched the posture with several important perspectives.

  • This is a pure trade in the context of much deeper, broader and more profound structural concerns. As a trader, I'm not as concerned with the destination as the path that we take to get there.

  • I've defined my risk in my chosen vehicles, such as Citigroup (C), to the recent lows (which coincide with my entry point) and will look to both pare on rallies and roll my stops (if applicable).

  • Until the series of lower highs and lower lows (that are prevalent across a litany of averages and indices) is broken, Boo deserves that big picture benefit of the doubt.

  • The VXO, which is a measure of volatility, is a ways away from previous fulcrums that have accompanied past pain pivots.

  • The mainstay averages remain higher for the year. So while it feels like we've been beaten and battered, the reality is that we're simply given back some gains from earlier in the year. That perspective is an important one.

As I tend to use technical analysis as a context rather than a catalyst, it's worth noting that, once DJIA 13K broke, we traded directly to DJIA 12,800, which was the last support before DJIA 12,000. It held in kind and served as a spark in the Friday dark, igniting the lift right back to… yep, DJIA 13,000. That's where we'll open today and the reaction should be a strong tell as we start yet another nutty week.

Discipline over conviction and never let the definition of an investment be a trade gone awry. And remember, Minyans, nobody-and I mean NOBODY-comes into our house and pushes us around.

Good luck today.

Random Thoughts

  • Stop the presses! My Raiders actually beat the Chiefs? Just when I thought Santa was gonna bring me a top notch draft pick for the holidays!

  • So it's said, I believe we're in the early inning of a multiyear credit contraction. All this sub-prime stuff is simply the first of many vehicles and obstacles that will show themselves in time.

  • When asked by the FOX Business Happy Hour crew on Friday if I thought we were going into a recession, I replied that I believe that, for many in the former middle class, we're already in a recession that has been masked by a lower dollar and skewed by the economic statistics as a function of the "haves" and 'have not's" (fewer folks spending a lot more money).

  • Short people and big debts. Countrywide Financial (CFC) is now a single digit midget. And it's one that now owes upwards of $50 billion dollars to the Federal Home Loan Bank in Atlanta.

  • I saw American Gangster yesterday and thought it was most certainly worth two hours and forty minutes of my time.

  • The implications of Fannie Mae (FNM) and Freddie Mac (FRE)? The velocity of money (or lack there of). They've effectively muted any multiplier effect that new money in the system would have once created.

  • Band-Aid on a broken bone? Fed fund futures are calling for 100% odds of a 25 basis point cut on December 11th and 6% odds of a fitty bip snip.

  • Festivus is next Friday and we want YOU to share the journey with us. Spots are getting spotty so if you wanna belly up with ye fellow faithful, pleased lettuce know and we'll make it so!


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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