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Monday Morning Quarterback

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Remember, when trading, to always ask "why" before making blind bets.

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Like a moth to a flame burned by the fire.
My love is blind can't you see my desire?

(Janet Jackson)


Good morning and welcome back to the flickering pack. After a wild ride and Friday slide, we open our fresh five-session set to find mixed global markets and early stateside optimism. With a weekend of reflection and July expiration behind us, the Monday fun comes down to one simple question.

Will fresh Merger Mania be enough to stuff sub-prime contagion concerns?

These new deals are like a former flame seen after a long absence. You're reminded of the spark once shared and pine, in your mind or elsewhere, for the innocence of love and the passion it provides.

The M&A boom was the backbone of the recent rally and the morning news pitter-pattered the futures higher.

Cerberus Capital is buying United Rentals (URI), the world's larges equipment rental company, for $4 billion.

Transocean (RIG) and GlobalSantaFe (GSF), the world's two largest offshore oil and gas drillers, have agreed to nuptials that will create a $53 billion dollar behemoth.

Barclays Plc (BCS)
, which has been trying to buy ABN Amro Holding NV (ABN) in the biggest banking takeover ever, raised its bid more than 4% to $93.4 billion after lining up investments from China and Singapore.

Heck, even the rumortrage channels are in play as speculation spread late Friday that Nokia Siemens Networks (NOK) (SI) may bid $7 billion for Tellabs (TLAB), putting a 20% spring to the network equipment maker's step.

It's aaaaall good, as Snoop Dogg would say, but will it be good enough to shift psychology in the financials away from the dreaded credit woes?

By now, you know the story in the banks and brokers. Sub-prime, widely assumed to be a pimple in the broader financial complexion, is spreading like a rash through Wall Street portfolios. As the underlying securities of these complex derivative transactions are "marked-to-market," sudden losses and forced selling begets more of the same.

"There is $100 billion of bridges of high yield bonds in the pipeline looking forward, and there is $200 billion of leverage loans, the next four or five months and that's a lot, and I think that is causing re-pricing of covenants and picks and toggles." JP Morgan honcho Jamie Diamond said late last week, joining Citigroup executives who offered that deals would have to be sweetened to move them off it's balance sheet.

We've been closely monitoring this sector as it's the Dogg that wags the broader market tail. And the price action of late has been all you needed to know about the broader directional pull. The BKX failed mightily at triple resistance last Wednesday, falling 4% and ushering the S&P back through the uber-important S&P 1540 level.

That zone, which has morphed from resistance to support to resistance anew, is front and center as we power up our weekly pup.

Random Thoughts


R.P.

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