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Random Thoughts: What Does It All Mean?

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The GSE bailout is having its way with the market.

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Editor's Note: The following content was posted in real-time on our premium Buzz & Banter and is being shared here for the benefit of the Minyanville community.


Morning Dew - 8:14 am

  • So, how was your weekend?

  • We've been talking about the disconnect between the equity and credit markets and the large, looming elephants that were Fannie (FNM) and Freddie's (FRE) $230 billion in debt coming due by the end of the month (as well as the hundreds of billions of financial debt due into year-end).

  • The weekend news is a steroid shot for the stormer form but leaves incrementally less drugs to deal with the latter matter.

  • While the specter of an avoided disaster and incrementally stable debt (and by extension, equity) markets is the reason for this gasp higher, my sense is that there will be a strong "fade" (sale) opportunity at a point, if only for a trade (but isn't everything a trade)?

  • Hank Paulson, in this morning's media coverage, spoke frankly about this being the last resort in the face of "grave" concern (is there any other kind?), the appetite (or lack thereof) from foreign holders of GSE debt, "heaven help us" if we didn't figure out the GSE structure (but have we yet?) and that the structure was "flawed to begin with" (Gee, really?), it's "not a happy time for anyone" (amen) and "he is having trouble sleeping (to which I would say "try Ambien," but be careful of sleep eating M&M's and microwaving brownies in the middle of the night.

  • The other option for some R&R, Hank, is to hang tough until your January retirement, fire up the private jet, buy an island (I hear Bora Bora is nice this time of year) and pull a Vince on secluded beach.

  • I'll be back, Minyans--this is most certainly a three-Nespresso morning and I'm in desperate need of a refill.


Engine Room, More Dew! - 9:04 am

  • The Drip & Slip! I suppose we now know why the financials had such a strong bid late Friday. Someone should take that leak and drip it ever so slowly on the foreheads of those who acted before the information was public.

  • Shocker of the morning? The stronger dollar. When I went (tried) to sleep last night, the DXY was off 70 bips. This morning? Up 35 bips. I don't know if it's today's business but I'll again say that big picture, a stronger dollar is asset class negative.

  • I've walked through my current positioning in the Monday Morning Quarterback. In particular, I may call an audible on General Electric (GE) puts given the quiet announcement on Friday that the SEC was looking into its derivative accounting.

  • It's gonna be hairier than a gorilla on the opening as the winners and sinners quickly decouple. Play to win but play smart--there is a lot of confusion in the marketplace and that'll lend itself to outsized volatility. Smaller--and fewer--positions will likely serve you in good stead.

  • While it was GREAT to see Entourage back in action, I was less than impressed with their opening salvo. The good news? There's always next week.

  • Good luck Minyans, and let's be careful out there.


Quick Trick of the Trade - 9:24 am

On gap openings--like the one we're about to see--keep your eyes peeled for stocks that don't jump (read: open flat to lower). That's a tell-tale sign of supply and could offer some easy, quick trades during the first press lower.

Best guess? Press, rally attempt, siftage of winners and sinners, higher close, muddle forward, harsh downdraft (in time) as the difference between drugs and medicine manifests and other financial institutions fail.

Good luck.

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Gate Sniffage! - 9:49 am


Audibles on the opening? Glad you asked as I'm happy to share with the important disclaimer that this isn't advice--I'm simply sharing my process with hopes that it adds to yours.

  • I punted my General Mills (GIS) calls for one reason--it opened flat and if it can't gap higher with these futures, it's not a long I want to hold... yet.

  • I doubled down on my General Electric (GE) puts.

  • I nibbled on some Wachovia Bank (WB) October 20 puts for a pullback trade as it edged towards $20.

  • I sold 1/4 of my USO call position into the 2% lift (with and eye on another 25% due to the surprising strong reaction by the US Dollar).

  • I added to my SMH October put position as it was unable to take out SMH $27, which is near-term resistance.

  • I'll be back.


Well the first trade is the easy trade, don't you worry anymore... - 10:11 am

Holy Guacamole, are we having fun yet? Trading is one thing--typing, trading, fading, phoning, sipping, reading, listening, watching... I'm like an A.D.D. moth in a light bulb factory after he got caught in a cup of coffee.

ANYWAY...

  • This first probe lower was and is the easy trade. I would cover some stuff if I could.

  • Note where the NDX failed--1800--right where it should have (which synced, by the way, with SMH 27 on the nose). ow both are down on the day. Ca-razy!

  • If we fail outright--and I don't think "HIM" will let us--the higher dollar would have been the tell tale sign.

  • Note Lehman (LEH), which is about to flip the downside switch.

  • Other red beans in the green sea? Biotech, Apple (AAPL), Oracle (ORCL), Qualcomm (QCOM), Nabors (NBR), Sandisk (SNDK), the gamemakers (Not T.O., I'm talking Activision (ATVI), Electronic Arts (ERTS), Take-Two (TTWO)) and Boeing (BA).

  • Gotta hop, I'll be back.

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Position in GE, SMH, WB, USO
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