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Monday Morning Quarterback: Which Way Will the Financials Lead?


...the carnage in the banking complex speaks to more ominous issues in the system.


"Just win, baby."
Al Davis

Good morning and welcome back to the gridiron track. Following a fantastic weekend full of football, we power up our weekly pup a fresh five-session set. From playoffs to payoffs, the trenches are tense and the stakes high.

Win, and you're allowed to stick around. Lose, and it's time to go home.

The action last week was dubious, save some intriguing traction Friday in the financials. Indeed, after Big Ben chimed Thursday, the market was aflutter with chatter of a "surprise" rate cut. Anxious anticipation spread late Friday with speculation we could see scissors as early as this morning.

We've long offered that as go the piggies, so goes the poke. The question we're wrestling with is whether the heretofore decline in the financials will precede a broader malaise or if an oversold bounce - be the catalyst lower rates or kitchen sink quarters - will spur the herd higher.

The answer, frustrating as it may be, is yes. Yes, the carnage in the banking complex, as the truest encapsulation of our finance-based economy, speaks to more ominous issues in the system. And yes, as perception is reality on Wall Street, hope will spring eternal if the bacon can get shakin'.

I was speaking with one of the savvier seers I know over the weekend about the Bank America (BAC)-Countrywide (CFC) merger, along with speculation that JP Morgan (JPM) would assume Washington Mutual (WM). His take was that these deals are attempting to cut out the cancer but chemotherapy, in the form of upcoming earnings, will continue to weaken the patient.

Grim, perhaps, and sad, for sure, but rest assured that the world's best stock market surgeons are on the case around the clock. Remove emotion, stay disciplined and understand that hope, while helpful, isn't a viable investment vehicle.

Good luck today.

Random Thoughts

  • It was a big weekend for Big Blue, be it the New York football Giants or IBM (IBM). Both stood their ground in hostile territory with the former advancing to the NFC championship game and the latter rallying eight percent as orders from Asia and Europe bolstered results.

  • Sears Holdings (SHLD) is off-sides the other way after it missed numbers and Wall Street analysts piled on. We know how important field position is so watch the reaction to this news following the organic 2 for 1 split since last summer.

  • Each subsequent probe of support (resistance) absorbs a layer of demand (supply). Along those lines, keep close tabs on S&P 1380, if and when, as it'll be the fourth flurry at that level.

  • How 'bout them Bolts? Beating the Colts at home with their starting quarterback and the best running back in the league standing on the sidelines is one of the more amazing upsets I've ever seen.

  • Circling back to the BofA, it's not as simple as "the company's only risking $4 billion on top of the $2 billion already on the table." There is considerable litigation risk, which it has now assumed, and deeper pockets for the plaintiffs.

  • In my search for potential pharma plays, I've been picking up positive chatter on Elan (ELN). I'm not yet involved, however, as there is massive binary risk ahead of a near-term FDA decision.

  • Remember when $100 billion in bank write-downs seemed like a lot of money? We're there, with the finish line far from sight.

  • Fed funds futures indicate a 34% chance the Fed will cut the federal funds target by 50bp and a 66% chance of a 25bp cut at the January 30 meeting. That has led to a softer dollar and stronger commodities out of the Monday gate.

  • Finally, as we continue to iron the wrinkles out of The Exchange and Minyanland for Kids, please take the time to take a test drive as we build the vision of the 'Ville. Thanks!


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