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Sunset Grille: The FOMC and Brokerage Earnings To Shape the Road Ahead


This week will offer a myriad of meaningful messages as we shape our journey into 2008.


Butterflies and zebras and moonbeams
And fairy tales
Thats all she ever thinks about
Riding with the wind.

(Jimi Hendrix)

Good morning and welcome back to the flickering pack. I'm currently traveling on the left coast, a jaunt that began with Professor Adam Katz's wonderful wedding in San Diego. It was an intimate gathering on the beach during the Saturday night sunset, a ceremony that concluded with each guest unleashing a butterfly from a small box.

The spiritual significance, as I would learn, was tied to an ancient Indian ritual regarding the beauty of a new journey. While my inner PETA initially struggled with the boxed-in flutterers, I opened my mind to partake in the process as the other guests did the same.

It was, in many ways, apropos given the collective crossroads we share.

This week will offer a myriad of meaningful messages as we shape our journey into 2008. With the FOMC decision due Tuesday and the most important brokerage earnings in recent history on tap (Lehman Brothers, Morgan Stanley, Bear Stearns, Goldman Sachs), the price action this week will go a long way in shaping the all-important year-end psychological metric.

Having traded the financials for seventeen years, I'll offer that they're slippery little suckers. Earnings, by definition, are rear-view assimilations while the market is a forward-looking discounting mechanism. That's particularly pertinent when it comes to proxies of the US' finance-based economy that are serving as the centerpiece of recent smoke.

At dinner with the incomparable Stephanie Pomboy of Macromavens last week, we spoke about the cumulative imbalances currently in play. We share concerns regarding the ever-present pressures, both on the consumer front and with regard to the system itself, and concur that two dynamics will ultimately define our destination.

The first is that the dollar is the valve that will tell the tale. Not so much as it relates to domestic policy (we agree that the government will let the dollar deflate in an attempt to facilitate the velocity of money and the elasticity of debt), but as it pertains to foreign holders and their collective patience.

The second is the context of time. The Federal Reserve, by accepting riskier assets at the discount window, has shifted the terms of engagement. Leaving the "moral hazard" discussion alone for a moment, these actions could perceivably buy the market more time by pushing risk further out on the curve. You don't have to agree with it, you simply have to respect it.

Time, as they say, is the arbiter of all fate.

For my part and as I'll be traveling on business until the red-eye home on Wednesday, I am in risk reduction mode. That may mean opportunities lost but I've learned the hard way that blind risk is a poor man's bet. I'll be sans 'Ville for the nuts and guts of Bernanke's strut but, as always, I'll do my best to tie it all together upon my return.

Fare ye well into the dwell, Minyans, and I'll be back in the saddle soon.

Answers I Really Wanna Know…

  • A friend of mine told me over the weekend that he hasn't worn a watch in two years. My question to him was: how can he know for sure?

  • If Alan Greenspan didn't "get it" until 2006, isn't it possible that the powers that be still "don't get" the implications of debt dependent, derivative laden, reward chasing behavior as it relates to the US' finance-based economy?

  • Pencils down! Does anyone know the last time Fannie Mae actually reported audited earnings?

  • Why can't I shake the image of a "drive-through discount window" that is akin to a fast food joint?

  • Who bought all the commercial paper that was "rolled out" last week?

  • Isn't it possible that it's not all about the US? What if foreigners-who own a slew of dollar denominated securities-are the swing factor in the battle between the 800-lb gorilla (credit crunch) and the elephants in the room (central banks)?

  • Why would I rather see the Raiders get blown-out rather than fight the good fight and lose in the last seconds for two consecutive weeks?

  • Especially against the dreaded donkeys?

  • With all the "marked-to-market" exposure on the sheets of big cap brokers, will they find the money to "print" any number they want this week?

  • Is $80 crude the new $50 crude? And won't it only "matter" when the consumer, and by extension, the market, deems it does?

  • Do you have Friday night, December 7th circled for the Minyanville Circle of Trust NYC Holiday Festivus to Benefit Children's Education?

Mailbag Grab Bag!

In my holiday/wedding/business trip absence, I scribed a vibe last week that talked the mission of Minyanville and the perception of "universal bearishness." Suffice to say that the missive struck a nerve with a litany of Minyans and we share some of those responses in the vein of community.

Please know that in the coming months, in addition to MV Kids, we'll be launching The Exchange, which will facilitate "Minyan to Minyan" interaction and communication. Alas, as we're not yet there, we're happy to share this fare as in the interest of the forthright Minyanship.


I felt compelled to chime in on the comments by Minyan Alex as I couldn't disagree more with his comments. Minyanville is the only source of financial information I've found that presents anything close to an unvarnished truth.

You don't have to like it--or even agree with it--but the simple fact is that nobody else is providing financial content like this. That alone makes Minyanville incredibly valuable. If folks want sweet candy news, well, there's plenty of that out there. Thanks for creating Minyanville and having the guts to keep true to your vision.

Minyan A


You guys at Minyanville are of the few that choose to utilize logic in analyzing this market, I can't believe all the rose-colored glasses currently being worn by the Street. Nobody cares about the inflationary consequences of cutting rates. The new mantra seems to be "out with the old economic cycle where recessions were a necessary evil to cleanse the system and in with the new linear economic expansion." What went wrong to bring about this perverted thinking? Bring back Paul Volker please

Minyan Dave


I wanted to offer a thought on your column about the universal bearishness on the site. I have been running an active hedge fund since 1995. Toddo and others have shared the same pattern. The early writings showed tremendous (balanced) market prowess and trading performance. Ultimately, the problem of living by specific market/stock calls in full view of the public, and the inevitable reversion to the mean, has forced these seemingly smart guys to change their MO and seek refuge behind academic, econometric, cynical and even trite commentary that always focuses on what "ought to be" as opposed to what is.

There are few public personas that exhibit the fortitude to resist this path of least resistance, as non-value added as it is. Sure sounds good though, with all the cartoons and word plays. When I see the boilerplate "we are not here to recommend investments" and then read the rest of the warnings about the inevitable end of the world ("well, if not now, then later") it's quite frustrating and I wonder how many new subscribers you are getting to buy into all this.

I've been reading you and others since you all began and this dynamic is by no means new. For someone who cares more about results than hyperbole, I'm saddened that all of these talents have retreated into the crowd of "sharp-edged pablum". Aren't your readers getting tired of all these modern day Gen-X economists who are not accountable to the hard facts of market performance?

Minyan Stu


As another "new to Minyanville", and part of the Silent Majority I thought I would express my two cents. I find the articles, information, and education sensational. The in-depth explanation of many topics and the analysis of money supply, movement, and the way it all works is an eye opening experience.

In reading the comments about "the bearishness" of the site, I also had the same opinion but in a positive way. Thorough commentary has presented information factually pertinent information and the truth sometimes hurts, thus the "tone" of some of the work. Keep it up.

A very grateful Minyan Gregg


I, too, am new to the 'Ville and echo Minyan Alex's observation regarding the noticeably bearish bent to the posts (along with a noticeable absence from some professors on "up days"). I'm no fan of the TV cheerleaders but find that both extremes are unhelpful.

Minyan Rolf

Toddo and other professors,

Please don't change anything about Minyanville. It is so difficult to find information on the market where someone isn't talking their book. So, while some perceive the honesty and truthfulness found in Minyanville to be bearish, be that as it may. If I wanted happy talk and cheerleading all the time, I know which channel, website, or paper to look to find that.

So keep speaking the truth... even if it's not what everyone wants to hear.

Minyan Bill

Hey Toddo,

I wanted to respond to the Minyan mailbag and should probably preface this by saying the fund I manage is roughly 50% net short (and no, we don't use leverage, trade illiquid securities and you won't read about us shutting down distributions to investors while trying to figure out how to mark positions to model)

I think Alex may be right in that the 'Ville has somewhat of a bearish tint to it this year but that shouldn't be surprising given the structural issues we are dealing with (or trying to ignore) in the market. I have never felt that you exclusively take one side of the tape – either personally or as a collective professor group. You constantly remind readers of the risk of moves counter to your position, and humbly offer instances where you have been wrong or early. This adds value to the community as traders also learn how to deal with uncertainty and how to trade through positions and environments that run against expectations.

As far as Alex's personal comment about working hard, one of the things I appreciate most is how you keep it real, discuss priorities and concentrate on life outside this business. There is nothing wrong with working hard (and I mean HARD) as long as you can step away when the day is over.

Take care bud, and enjoy the time away,

Minyan Zach


That mailbag from Minyan Alex was really great stuff. I confess that I am slanted bearishly but try to remain conscious of the market's decisions, not my own opinion. Minyanville continues to teach me, I'm just not easily "taught". The main thing I try to remember is that one can't teach (tell) anybody, anything, if they are not ready to learn. It's the whole horse to water thing.

Thanks again, and again. Peace, love and self-awareness

Minyan Rich

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