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Monday Morning Quarterback: Assigning Reason to the FOMC Rhyme


How far will the dollar be "allowed" to fall before someone screams Uncle Sam?


"If my calculations are correct, when this baby hits eighty-eight miles per hour... you're gonna see some serious schvitz ." -Dr. Emmett Brown

Good morning and welcome back to the future. Following a freaky week that saw the FOMC shift policy in reverse, the weekend press was focused on assigning reason to the rhyme.

After years of focusing attention on the devil we know (inflation), the market demanded-and the Fed delivered-a rate cut designed to alleviate pressure in the credit markets. In doing so, it effectively threw up its hands in the face of inflation and told foreign holders of dollar-denominated assets that every nation must fend for themselves.

We've been monitoring this dynamic for years, musing that the 30% run in the S&P has been masked by the 33% decline in the dollar. That hasn't mattered to "us" (those who earn, spend, save dollars) but it's been the central tenet of foreign angst and the seed that continues to sow Nationalization..

We have, and likely will continue to, see a transfer of wealth as a function of the "33% off" sale on U.S. assets. However, a more pressing question has emerged for capital markets and those who trade them.

How far will the dollar be "allowed" to fall before someone screams Uncle Sam? And when the greenback finally finds a bid, will it, through the lens of "asset class deflation vs. dollar devaluation" be the clarion call to avoid asset classes of all shapes and sizes?

Food for thought as we ready ourselves for the final fray of the third quarter play.

Random Thoughts

  • The correlation of black box (quant) strategies was-and remains-acute, which was largely responsible for the fabu gains and, ergo, the widespread pain. This confluence of strategy will likely exacerbate inter-asset class volatility.

  • We wondered aloud if September expiration would be the mirror image of the August scrimmage. That was a nonsensical thought but will remain on the radar after our sobering cup of coffee that will follow the typical post-expiry hangover.

  • The twist to that cocktail is quarter-end, which has crept up after what felt like the quickest September in history. The other "oh-by-the-way" is the redemption window, which happens to coincide with the collective countdown.

  • Achtung Baby! Deutsche Bank is off a deuce (2%) in overseas trading on chatter that it could take a $2.4 billion hit in loan markdowns.

  • Risk-reduction? Margin debt of all customers of NYSE firms plunged by $50 billion (13.1%) in the month of August after prime brokers forced hedge funds to de-lever (TrimTabs).

  • We don't do acrimony in the 'Ville although we're pretty consistent with our "critical thinking" (looking beneath the headlines). In that vein, we've been of the view that Alan Greenspan's deity legacy won't last and, just so it's said, I'll offer that Fannie Mae, which hasn't released audited earnings in years, will one day be seen as the poster child for financial experimentation.

  • Even a broken clock is right twice a day and sometimes a broken team wins a football game. Congrats to my silver and black for their first win of the season and for being tied for second (and one game out) in the AFC west (a man can dream!).

  • Key "tells" include the dollar (macro valve), financials (proxy for our finance based, debt-dependent economy), breadth (intra-day health) and beta (fast money sentiment).

Minyan Mailbag

On Friday, as those on the real-time Buzz know, I was dancing around the Goldman Sachs puts that were added on the initial post-earnings pop on Thursday. Given that I had rolled down my trading stop to the other side of the 200-day at $207.50, I was forced to punt the puts Friday afternoon in the vein of discipline over conviction. I had an eye cast towards the more pertinent resistance at $214 and, while expiration pulled this pup towards $210, I wanted to exercise some patience in the position.

Sure 'nuff, while I was tying up loose ends on the week that was, news hit the tape that the Harman deal was being pulled. As I mused at the time, there are two ways to look at the news. The first is that, as deals are now getting done again (albeit at a slower pace), the bulls will view this as "deal selectivity" as they weed the good from the bad. The second is that, well, deals are being pulled.

Right, wrong of indifferent, I snuck back a few GS puts right into the closing bell with the stock pinning $210. I'll continue to use (a trade above) $214 as my stop level but wanted to share this mailbag from a respected Minyans as we together find our way.


Regarding Harman. I have followed the company and I can tell you this deal pull is not about sorting the good deals from the bad. Maybe the price KKR and GS agreed to pay was too high and now it looks silly given the credit situation but HAR is one of the highest quality deals out there in terms of the company and its products.

The company has NO debt and is a leader in its space. This is not a bad company deal, but this could now be a bad deal for the PE guys that they are putting out a smokescreen to run away. There is something non-HAR related and insidious going on below the surface here that they are pulling the Material Adverse Change clause out to walk away from this deal.

Since they had the committed financing for the deal, I am wondering if the bankers on the hook are in such tougher situation right now that they are pulling commitments and PE guys know they can't get financing anywhere else so are screwed. If this deal is pulled for this profile of company, there are a ton more to come. And the lawsuits are going to fly.

The stock was trading at $104 the day the deal was announced. I'ts now at $83 in the after-market. A bunch of arbs just got smoked and someone is going to buy a solid company on the cheap. Like me.

Minyan Triple M (position in HAR)


Position in GS

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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