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Random Thoughts: See the Ball!


Adapt and play the hand you've been dealt.


Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also Jumping the Shark in Our Wishbone World?

So, what's gnu?

I've gotta tell ya, I've been trading for seventeen--or is it eighteen?--years and I've seen my fair share of despair.

I waffled through the Orange County crisis in 1994, which was the largest municipal bankruptcy in U.S. history (they lost $1.6 billion in derivatives trading. Pishaw! Peanuts! Acorns, in today's world!).

I waded through the Long-Term Capital Management collapse, the Thai Baht Contagion, the Russian rubble mess, the Y2K scare, the bubble, the tech crash, September 11th, the housing bubble, China bubble, crude bubble and now, the granddaddy of them all, the debt bubble laced with a derivative bubble in the midst of a hedge fund bubble layered with a consumption bubble.

(Pause for digestion.)

So, what's my current take? Put a water pistol to my keppe and I'll offer that we've seen the 2008 trading low. That's NOT to be confused with a market bottom--nobody is bigger than the market and there are two true solutions--time and price--on the way to the ultimate destination of debt destruction. That may, however, be pushed out to 2009, or at least that's my real-time take.

There are obvious caveats to that view---namely social mood and risk appetites--but the conditional elements are seemingly in place. The government has socialized the market(they can't cure the disease but they can mask the symptoms), individuals have cashed out (helped by certain screaming pundits), hedge funds are woefully under-invested and the potential for a mad scramble for performance anxiety exists into year-end.

I will be VERY clear on this. I am a red blooded, card carrying free-market advocate. I weep for the former capital construct and fear the implications for future generations. This is the hand we've been dealt, however, and the onus is on us to adapt to the market. Time is the arbiter of all fate and our unavoidable destination pales in comparison to the path that we take to get there.

As Minyans know, I adopted a more constructive trading posture last week into the heat of the downside meat. I was early and it felt wrong but I traded around my core exposure--buying dips and selling blips--and carried most of my exposure into yesterday's eye-popper. I sold most (not all) of my remaining inventory into the bell and given the 20% rally from Friday's low to yesterday's close, I will not look back. Profitability resides in the ride ahead.

I'm not going to chase the opening, which may prove wrong but opportunities are made up easier than losses. I plan to make sales, effectively flattening out the trading side of my book, and will then watch (what I perceive to be) the inevitable probe lower for truth and tenor. In short, I'm gonna pound my glove like Graig Nettles and operate with an open-mind and two-sided approach. Real risk remains--possibly on the geopolitical front--so the management of risk is paramount.

Potential vehicles include energy (Weatherford (WFT), Transocean (RIG), Schlumberger (SLB), BHP Billiton (BHP), USO, FXY (Japanese Yen), QLD (at the right price but note that the NDX isn't acting as well as it should pre-opening, so S's over N's is possible, as are red Q's) and the EEM.

Where you stand is a function of where you sit so please understand that none of this is advice--not to mention that it may be entirely wrong. Time will tell and we will see, together as always, as Minyans.

May peace be with you.


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