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Random Thoughts: Which Way Will We Go?


Factor all scenarios into your risk profile.

Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also Back in the U.S.S.A.!

Let The Games Begin! - 9:24 am

So how was your weekend? NYC had an interesting energy unlike anything I've ever seen. It wasn't exactly dazed and confused but it was certainly close. An air of desperation mixed with an unspoken fear, perhaps, with a whole heckuva lotta steam being released into the universe.

As we come to terms with the new world order, the onus is on us to effectively understand the "hows" and "whys" before we can assimilate the "what now?" It is in that vein that I scribed my morning vibe and I encourage all Minyans to not only read it but to pass it along to as many friends and family as possible. This isn't about MV publicity, it's public service and the quicker we spread the good word, the faster we, the people, will be able to work our way through this.

With that said and without further adieu, some top-line vibes to start our freaky week.

  • When the futures opened last, the S&P was indicated down 30 handles (roughly 240 DJIA points). That quickly faded higher as further details of the bailout plan were announced (including the potential to absorb car loans, credit-card debt and other devalued assets). In other words, they're proposing to take the other side of zero percent financing that we've been discussing for oh-so-long.

  • We can and will debate the merits and magnitude of the plan but the onus is on us to adapt. We must now wrap our paws around whether we've jumped the shark to the other channel of Our Wishbone World. IF that's the case, the dollar could see some serious downside which would stir the hornets' nest that is foreign holders of dollar-denominated assets.

  • The decision to scrap the Wall Street model and morph Mother Morgan (MS) and Goldman Sachs (GS) into traditional bank holding companies is the end of an era. We will delve deeper into those discussions in the days ahead but suffice to say that it's the exclamation point on our series last week regarding Why Wall Street Will Never be the Same.

  • We walk through two interesting analogs in my morning missive. The first is the tick-for-tick trace of the 1971-1976 period and the second is a look at what happens to "free" markets when they're no longer free. If you haven't taken a peek at those freaks, it's most certainly worth a noodle.

  • Lost in the shuffle--and what a shuffle it is--was the fact that the debt ceiling ($10.615 trillion) has turned into an amphitheater ($11.315 trillion). Newton discovered that for every action, there is an equal and opposite reaction. My grandfather taught me that what goes around, comes around. But are reverberating behind my eyes as we ready to unleash the hounds anew.

  • We could certainly see an artificial rally--and we could also still see a crash (the probabilities of the former storm have downticked but not disappeared). Through the lens of risk management over reward chasing, we must allow for all scenarios and factor them into our risk profile. Price discovery is a process rather than a point and capital preservation, debt reduction and financial intelligence are directionally independent.

  • Good luck Minyans--let's do this.

Single Best Guess? - 9:37 am

While this is a brave new world--and one where the rules continue to change--my "gun to head" guess on next steps would be some early testage today, followed by an upside relief rally that has some legs and then downside comeuppance before year-end (which seemingly jibes with the thoughts of Professor Sedacca and Professor Cooper in his morning missive).

My marching orders through this all? Play smaller (when I do), tighter (as a function of increased volatility) and preserve capital (to take advantage of the many opportunities that will ultimately emerge when this prolonged period passes).

Just wanted to "put it out there."


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