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Random Thoughts: War Games


Big Ben leads the troops today.


"May I have your attention please. Mr. Hunter has brought it to my attention that morale may be a bit low. That you may be a bit…on edge. So I suggest this. Any crew member who feels he can't handle the situation can leave the ship right now! Gentlemen, we're at DEFCON three, war is imminent. This is the captain, that is all."
-Capt Frank Ramsey, USS Alabama

FOMC Wednesday arrives with all eyes on Big Ben and his big guns. There's a fine line between a nuclear arsenal and toxic waste and that's precisely the line he's attempting to find-one where he can flex his muscle but not use any more precious ammunition. The entire world is watching and many of them are none too pleased with his tactics to date.

In terms of anticlimactic events, this has the potential to rank up there with the best of 'em as Fed Fund Futures are laying 10-1 that he'll stand down. From there, we'll watch for slight shifts in his vernacular regarding future courses of attack. With inflation in things we need, deflation in housing and a full-fledged credit conundrum, the margin for error is increasingly thin.

Old school Minyans know the deal by now. We've walked through the anatomy of our current juncture, eyed the critical crossroads, monitored the financial engineering and spoke to the importance of Fed credibility. We've also touched on the fragile technical juncture of the US banking system as the BKX sits on decade lows after losing 50% of it's value. Fifty percent. Wowzers.

As discussed in real-time on the Buzz & Banter, I recently zigged into the zag and picked up some calls in select financials-including Wachovia (WB), JP Morgan (JPM) and Citigroup (C)-for a pure trade with a tight stop on the other side of the aforementioned level. I plan to pare some of that exposure into further strength and "trade around" my risk. Talk about dancing between the proverbial elephants-they really don't get much bigger than this.

Lots going on, lucidity is key. Leave emotions for weddings and funerals and let's hop this hump with a smile on our puss and some jingle in our jeans.

Some Random Thoughts as we ready to rumble…

  • Two rules of thumb on FOMC day. First, it's a tale of two tapes, with 2:15 serving as the toggle. Second, the first move following the announcement is typically the false move.

  • When in doubt, sit it out or trade a bit "in between." If you're staring at every single little tick, odds are you're out-sized in your exposure.

  • Denial-migration-panic works across multiple time horizons. In other words, it's possible to be "panicky" in the short-term while still in the midst of a long-term migration.

  • There is a marked difference between doing TV once a week, as I've been doing since October, and filming live twice daily, as I've been doing the last month. I would be lying if I said time management (or lack thereof) hasn't been challenged. Ohm, Peace. Ohm, Peace...

  • As Professor Lance Lewis offered yesterday, "The 3-month bill yield is 17 bips below Fed Funds. The fixed income market isn't expecting anything hawkish from the Fed, let alone a rate hike anytime soon."

  • The reaction to news is more important than the news itself. Along those lines, please keep an eye on Barclays (BCS) following their long awaited capital raise.

  • Good luck Minyans-and think positive. Profitability begins within.


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Positions in WB, C, JPM
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