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Sleepless in Seattle: Better Early Than Wrong


Trading the short side of energy on the left coast.

Greetings from the great Pacific Northwest, where I'm acclimating to the time zone and readying for some morning melds. On the heels of last night's Seattle Minyanfest--a hearty thanks for all ye who trekked to the Revolution Bar & Grill--I wanted to share some quick vibes as I kick-start my Hump.

As Minyans know, I ventured to the dark side of the energy ride recently and positioned for a short-side trade. Consistent with my standard operating procedure, my entry point was a bit early and I've traded around the thesis since. Catching cusps is a dangerous game and an unpopular one at that. Suffice to say that the pushback I received on message boards was entirely more, uh, strenuous than previous fulcrums I've pointed to, including a bearish bent on the banks last summer and my reasons to buy the financials for a trade into the Bear Stearns (BSC) abyss. I'm not saying I'm right, mind you, I'm simply sharing that a lot of people felt strongly that I wasn't.

A few thoughts resonated as I bellied up with ye faithful last night and crystallized during my dinner with Professor Fleckenstein (we ate salmon at The Ruins... are you really that surprised?). The greatest misnomer in the marketplace is that equities will enjoy a relief rally when crude breaks, which I believe will catch a lot of folks leaning long and wrong. Fleck agrees with me, although he's allowing for a sharp, initial rally before they break 'em. Why are we swimming against the mainstream psychology stream? The asset class deflation vs. dollar devaluation discussion that we've walked though many times in the 'Ville. I would also note that the notion of margins on crude futes being raised is resonating with us both.

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For those with broader bearish inclinations, please watch three primary elements. The first is a sustainable bid in the dollar, for reasons described above. The second is the attendant slippage in commodities--most notably crude--while allowing for a Pavlovian, knee-jerk bounce. The third is a break below BKX 75, which would be fresh multi-year lows for the financials. As goes the piggies, so goes the poke... and the fact that folks are talking about the decoupling of this historically intertwined dynamic lends to the fact that it will again prove true.

As it stands, and as I ready to head to my meetings, my short-side exposure remains primarily energy specific including, but not limited to Halliburton (HAL) and USO--and I've tweaked the latter matter slightly as a function of the recent slippage (I was outsized into the meat of the heat last week, and it's more manageable now). Again, this is a pure trade--I'm not smart enough to know when we'll hop the fence from inflation to deflation, although I have strong conviction that 1) we would be there already if it wasn't for the massive government liquidity injections and 2) in many ways, such as housing, we're already there. Interesting times indeed.

With that, I'm gonna continue my journey through this beautiful city, grab a quick lunch with Professor Jon Markman and head to my afternoon meld. I sincerely hope this finds you well and jingling loud, my friends. I'll be back in the saddle on Monday with bright eyes and a bushy tail.

Fare ye well.

No positions in stocks mentioned.

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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