The only true medicine for the debt disease is an unfortunate destruction.
"Working and waiting in the hot sun
With all the rich saints, and the fallen ones
Working and waiting for the night to come.
And the waiting for a
And the waiting for a
And the waiting for a miracle…"
--Bruce Cockburn, as sung by Jerry.
Have you ever gotten vuja de'-the strange sense that you've witnessed something you wish you didn't? When I powered up last night and saw mounting evidence of the CIT Group (CIT) toe-tag, I had a sweeping sensation of the three little letters A, H and M.
We recently channeled American Home Mortgage, reflecting on the lessons learned a few years back. To borrow a quote of a quote-an entirely new level of narcissism-we recounted on Monday, when reflecting on policy makers:
"They understand that the market, as a forward-looking discounting mechanism, trades on perception. As Mayor Vaughn famously offered in the 1975 classic Jaws, 'It's all psychological. You yell barracuda, everybody says, Huh? You yell shark, we've got a panic on our hands in the middle of July.'"
To be sure, there are variables now that didn't exist then, such as the proverbial backstop that was created when the government bought the cancer and sold the car crash.
And there are differences in the business model. The Land Shark from two years ago was tied to toxic waste while this midsized fish could "precipitate a crisis" for as many as 300,000 retailers, according to Bloomberg.
Two things are on the top of my mind out of the gate. First is the issue of moral hazard-where do you draw the line between who shall live and who shall die?
Are policymakers suddenly channeling Alec Baldwin in Malice?
Are we collectively conditioned to believe we'll be bailed out?
To be fair and balanced, we've long maintained that intervention is a drug that masks the symptoms and the only true medicine for the debt disease is an unfortunate destruction.
It's a slippery slope, however, when Wall Street scores record pay and Main Street feels the pinch closer to home. What's good for the Goldman (GS) Goose isn't always good for the gander.
Second-and more pertinent through a structural lens-is the issue of counter-party risk.
Last I checked, the total notional derivative machination dwarfed the balance sheets of the globalized economies combined. That's lain dormant for months but must remain on our radar, particularly given the popular consensus that we've escaped the abyss.
The Minyanville mission is to provoke thought rather than shape it, so I'll simply say this: remain conscience, for the "other side" of conventional wisdom could quickly morph into the Widow's Peak of 2009.
Societal backlash against Wall Street compensation will manifest in many ways, including a strong regulatory response. In other words, policy once predicated on greasing the wheels of capitalism will soon draw the lines of distinction between how that money is distributed. We'll see it in the hedge fund universe and mark my words; we'll see it at big banks.
I'm keeping tabs on SOX 275, which is a massive long-term trend line in the semiconductor realm. The reaction to the Intel (INTC) news-particularly at a critical technical level-is more important than the news itself.
The dollar is a focus for obvious reasons.
Setting stops removes emotion. And you know what they say about emotion...
Eliot Spitzer weighs in on the current environment. Say what you will about his "off the field" activities but I wanna hear his take on what's at stake.
Take your information with a grain of salt, always asking "why?" and understand the agenda of the source.
Expiration influences are typically seen in the sessions prior to the actual option funerals, exacerbating the volatility. While some people try to "game" this monthly bill, I can tell you, after trading more than 200 expirations, that it's got the edge of a marble. The trick to the trade is to be in a position to use price to your advantage.
I've secured a southbound soiree next week that merges necessary business into some QT with my grandmother, the Margarita Maven. She's been pining for a night at the casino-she's no joke on the blackjack table-and I'm jazzed to share some smiles with this amazing woman (She's Ruby's wife...is it really a shocker)?
With regard to social mood, I am hard pressed to believe Wall Street bonuses will sit well with Main Street Americans footing the bill. Don't get me wrong, I'm a card-carrying free market capitalist who believes in meritocracy and culpability (there are two sides to every trade).
It's just, well, a bitter pill to swallow for the former middle class that can't find a job. Tension is thick and acrimony will stick. See it, even if you're not consumed by it and trying to be a true Minyan by focusing on solutions.
I will remind ye faithful that social mood and risk appetites shape financial markets.
The Crash didn't cause The Great Depression, as is widely believed, it was the other way around. I bring this to your attention while the screens are green for a reason and it's not because I'm Debbie Downer.
Just as it should never take something bad to make us realize we've got it good, it should never take a headline to shift our approach from "reward chasing" to "risk management." That discipline comes in many forms but the mechanics of the swing always trump the results of the at-bat.
Financial staying power-we pound it like a chicken cutlet because it really is that important. I still sense we're traversing the "widow's peak" of a "W" which is why I've used rallies to add September out-of-the-money puts in select situations.
That doesn't make it right but it sure makes it honest. And no matter what, they can't take that away from us.
Anyway and as always, I hope this finds you with some jingle in your jeans and a smile on your puss.
Good luck Minyans and let's be careful out there!
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