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Monday Morning Quarterback: Market Savings Time


Bad news may mean improvement ahead.


"And you run and you run to catch up with the sun but it's sinking. And racing around to come up behind you again." - Pink Floyd

Good morning and welcome back to the spring forward. What's good for the goose is good for the gander and Hoofy hopes what's good for the clocks will be so for stocks. After another tough week in the market, he finds himself in quite the hole as we power up for a fresh five-session set.

The S&P is off more than 10%, bringing the pullback from the October high to 17%. The DJIA is off 12%, or 16% from the autumn peak. The NASDAQ, lower nine of the last eleven weeks, is down 16% for the year and almost 24% from October levels.

If there is good news this morning, it's the abundance of bad news in the weekend press. The New York Times ran high profile articles Saturday and Sunday on the demise of the economy. The weekend WSJ declared that, following Friday's economic report, we're already in a recession. Barron's, for it's part, wondered aloud if Fannie Mae (FNM) and Freddie Mac (FRE) were ripe for a government bailout.

Does any of this seem familiar to ye faithful?

It's been our view that we've been in a recession, one that's been masked by the lower dollar and skewed by the spending habits of a slimming margin of society. We offered that by the time the economic statistics validated this view, the market, as a forward-looking discounting mechanism, would have priced in this potential.

Ditto the nationalization thesis, which we were repeatedly called to task for as we offered those thoughts over time. Heck, some went so far as to fashion some tinfoil hats for us, much like they did when we used to discuss Hank Paulson's Plunge Protection Team. It goes to show you that conventional wisdom takes time to catch-up to reality and by the time it does, it's ripe for change.

I don't bring this up to champion our acumen or take victory laps. That's never been our style and we've learned that if you think you've got a read on the market, she'll humble you in a hurry. I've been there and I'll be surely there again. That's not who we are and it's not how we roll.

We spoke last week about the importance of juxtaposing your time horizon and risk profile. I'm reminded of this as we ready anew for a fresh set of dew. The contrarian in me is tempted to take the other side of the negativity for an upside schnitzel, an approach I reserve the right to practice in the context of defined risk.

We must balance that, of course, with the technical breaks below the January lows (S&P 1310, INDU 12,000, BKX 77.80). Those breaches, coupled with continued credit contagion and the potential for margin calls and forced selling makes risk decidedly two-sided and begs discipline over conviction and patience over pressing.

One step at a time as we get there together.

Random Thoughts

  • "A quick note on energy: Commercials are very short crude, but I'm waiting for higher prices before I press the short side. Commercials were net short about 100k futures contracts in July and crude continued to rip a couple more weeks before correcting. I think the $110 level might offer a better risk/reward (if and when)." Professor Adam Michael on Friday's Buzz

  • Remember when we mused that the foreign holders of dollar-denominated assets would balk if the U.S allowed the dollar to continually devalue in their "lesser of two evils" quest for hyperinflation?

  • Dow Jones, citing sources, has reported that the Central Bank of United Arab Emirates, the second-largest Mideast Arab economy, set up a task force to help implement a possible de-pegging of the country's currency from the U.S. dollar.

  • Through the lens of asset class deflation vs. dollar devaluation, you can make the case that a stronger dollar will be bearish for equities. In fact, the action in stocks given the weaker dollar may very well be a bearish divergence. I offer this purely as an observation rather than with directional inclination.

  • Note the pink posture of big beta this morning. There is gonna be a nice upside trade in these names at a point-including Google (GOOG) and Baidu (BIDU)-and while I'm currently flat the name, I'm keeping close tabs on them both.

  • If you want to read the Minyanville professors in real-time, all the time, you can do so on the Buzz & Banter. I've long offered that this is the best content in all of Minyanville.

    Answers I Really Wanna Know…
  • While there were certainly bad apples, how can you paint an entire industry with a blame brush?

  • Isn't that like holding a whole fraternity responsible for the behavior of a few, sick twisted individuals?

  • If you do that, then shouldn't we blame the whole fraternity system?

  • And if the whole fraternity system is guilty, then isn't this an indictment of our educational institutions in general?

  • I put it to you, Greg - isn't this an indictment of our entire American society?

  • Moving on, what's the upside catalyst now that the Ambac (ABK) bailout and jobs data have passed?

  • Fiscal and monetary stimulus?

  • You mean, just like 2001?

  • If you were managing a "working group," when would you press the button for maximum effect?

  • If this keeps up, will they have to change the name?

  • Do you think it would harm my masculine credibility if I admitted that enjoyed The Other Boleyn Girl?

  • When is the last time you Did Something Joel?


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