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Of Munis, Banks and Merrill Lynch


How can a $12 billion purchase be a cash-neutral event?


With all due respect to Arsenio Hall and the late, great Freedom Williams, I'm not wired to go "Hmm." "Hmm" is what people who aren't perpetually geeked-up, judgmental and in charge of killing dead broadcasting air time say. "Hmm" is commentary death. Drawing an instant conclusion, then launching into a barely restrained howl, on the other hand, is gold. Or it at least creates enough "I hope I don't use the F-word" internal tension to make it interesting for me.

Here's what my internal monologue is shouting as I skip toward the glory of a Friday afternoon:

  • While we're on the topic of pop-friendly two-decade old rap, pull up a long term graph of the dollar and cue up Sir Mix-A-Lot. You may not normally dig technicals but you other Minyans can't deny that the dollar has one big rounded bottom.

  • Nigerian militants remain militant. Iran is run by a lunatic. My Armenian friends, the Najarians, will tell you that the Turks are up to no good. Crude Oil and its ETF, the USO, still find reasons to work lower. Funny how broken trends figure out reasons to go lower, isn't it?

  • With the trading world piling into airlines (AMR Corp. (AMR) is up 7% at the moment, Continental (CAL) up 8%, etc.), I'm waiting to see how the airlines hedged their jet fuel expenses during this ramp in crude and jet fuel. You think you felt pressure to catch the rally? Imagine if you were an airline CEO, watching the price of fuel drive you out of business because you didn't hedge "like those smart guys at Southwest (LUV)." If the most panicked, inexperienced buyers put the tops in parabolic moves, newly-formed airline hedging divisions make pretty good candidates to have hedged their fuel costs for the next decade at $145 a barrel.

  • A Goldman Sachs (GS) retail report showed pictures of Coach (COH) handbags on the shelves of TJ Maxx (TJX). I've lauded Coach in the past for its ability to grow while effectively protecting its brand. Consider that lauding to be over until I tell you otherwise (which is exactly the same thing as saying no, I'm not buying Coach).

  • The partnership with neo-capitalists in Russia is proving less of boon for BP (BP) than expected. Who'dathunk it (save any foreign entity investing in Russia since 1918)? Somewhere Churchill is grimly nursing a highball and sucking a stogie.

  • Surely the problems manifesting themselves in Russia would never plague a permanently fixed group of 25-stocks in a still-communist country run by a man no one ever really gets to meet, like that Chinese ETF, the FXI. It's a charming and traditionally American idea to think foreign countries would love nothing more than to play by the rules we mandate, as long as we can explain them. When W "Looked into Putin's eyes and saw his soul (somehow missing the part about Putin being a ruthless dictator)" it was practically an homage to Harry Truman saying much the same things about Joe Stalin. What's more curious about the Chinese mania is that the Chinese government will not allow the U.S. to see their unaudited financials and still we throw them our money, blinded by the market potential.

  • Speaking of guys you can't trust, I had Bulgaria as my "European Nation to Post the Most Positive Drug Tests" at +250. Now my bookie is refusing to count the 11 Bulgarian weightlifters because they tested positive and got dropped from the Games before they started. All I can say now is I hope Germany (my hedge nation) still has some of those East German pharmacists left over from the good old days.

  • I trust the idea of clean track competitors more than I trust the notion being spun on the Street that Merrill (MER), Citigroup (C) and the rest of the banks being forced to buy back all those muni's will "have no impact on liquidity." Questions I need answers to include, but are not limited to: 1) If the munis are so good, why are customers jamming them back to the banks? 2) How can you buy something for $12 billion and have it be a cash-neutral event? 3) Honestly, I can't think of a single bank that has demonstrated any clue whatsoever as to their liquidity situation over the last 12 months. I should trust them on this why? I'd almost (but not quite) rather wager on a 2,200 year old nation of communists running a fair and honest stock market.

  • Returning, and concluding, with my theme: Should you see me at the Minyanfest and want me to say not "Hmm" but an unprintable string of expletives, feel free to remind me that I've been making sweet verbal and written love to McDonald's (MCD) for 2 years and don't own the stock, which is making all time highs today.
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