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The Morning Buzz: Merrill's Mess, World Banks...


Inside the mind of a trader, in real time!


Editor's Note: The following content was posted on the Buzz & Banter throughout this busy morning and is now being reposted in the hopes that Minyans everywhere can get inside a trader's thoughts as they happen...

Morning Hump! - 8:41 AM

  • Continued white light to our southern California brethren. This fire is no joke.

  • We knew that Mother Merrill (MER) was gonna mess the bed but man--$7.9 billion? Ouch! Remember, that's one quarter!

  • The question, naturally, is whether this is "in the stock" (it's been acting nosty). With the news out, I'm gonna watch this puppy through the lens of our technical metric. $64.5 is mamuluke multiyear support, $67.25 is initital resistance and $70-$71 is a more formidable ceiling.

  • And remember, past support is future resistance. And vice versa. And so on.

  • This whole write-down thing has always struck me as odd. I mean, it's not like we can write down our bad decisions. Hmm... that slice of pizza last night at midnight? Strike it from the record. That painful relationship in college? Gonzo. Those S&P puts from 2003? I'll take that back, thank you very much!

  • In all seriousness, if this was a one and done thang, I might be a buyer. But I don't think it is. In fact, my sense is that there's alotta devils in the Wall Street closets. When those details surface, however, remains to be seen.

  • When will they be seen? That's an awesome question. Here's my best take on the subject.

  • If you're looking for an upside trade in these names, you might be right. Honestly, not sure (watch BKX 100 as near-term support). If your time horizon is a few years out, I would be (and have been) a seller of strength.

  • Finally, does it strike any other New Yorkers as odd that it's almost November and it's still hot and muggy? At 6:00 AM? Global warming heh?

  • Good luck Minyans--we're at the Hump! (what hump?)

Rotation Station - 9:39 AM

This just in... and out, as the case may be.

As I entered today's session with some downside exposure, I've made some sales of my underlying puts and took a nibble on some Merrill Lynch calls as it sits on our aforementioned multiyear support.

Nothing loony--and not advice (my risk profile is different than yours)---but I'm ok holding some of these calls with a hard stop under $65 against my S&P (December) puts and a snivlet of my Goldman (GS) junkie puts (added small on yesterday's opening gap).

Just communicating... lemme hop please.

I shoulda scooped that Costa Rica real estate when I had the chance! - 10:11 AM

The Wall Street Journal reports that Central Banks around the world facing a problem - their currencies are too strong and are attracting an influx of investment capital. In a bid to reduce the heat, some countries including Thailand and Colombia have slapped restrictions on foreign investment. Most others are trying to manage the pressure on their currencies by soaking up dollars, and parking them away in their vaults.

This is very consistent with the evolving dynamic we've been discussing on the back of the most recent rate cuts. It's also an extension of another theme--one of the central ten for 2007--as foreigners take steps to protect themselves. This may not be Nationalization in the textbook sense but it's certainly a step in that direction.

Many Minyans have asked why the falling dollar "matters" if we all earn, spend and save the same currency. The answer is that "we" might feel that way but WE don't. In a globalized economy, the financial machination isn't about US (period or not). Indeed, it's that thread of thought that likely contributed to the imbalances in the first place.

I love my country, enjoy apple pie and live for football on Sundays. This isn't about being patriotic (I am), it's about drawing lines of distinction between what is and what's perceived to be. For at the end of the day, trading--in it's purest form--is capturing the disconnect between that perception and reality.

I love 'em, I hate 'em... - 10:49 AM

Alrightee then, I suppose the first Snapper attempt was intuitive on the heels of the kitchen sink mentality we saw the last time Mother Merrill messed the bed. Heck, "hand raised" as I actually bought some Merrill calls (hard stop under $65) against tertiary put positions. I'm not playing big (OK, I'm a Todd-lot these days) but the mechanics of the swing are more important than the amount of zeros on an order.

I'm trading long gamma although I'm conscious that volsm as measured by the VXO, are up 35% in the last two weeks (albeit from a low baseline). And I'm keeping alotta dry powder such that I have ammo when the "DOH" moments arrive (such as the heavy drillers last Thursday, which I saw but didn't play). Either way and anyway, as I ready to step into an 11:00 meld (do I really have to change from my tee?), here are some top-line vibes:

  • Noise aside, market breadth remains punk and punker. Three sinners for each winner is no way to go through life, son.

  • Merrill calls? Yeah, I'm intent on losing money on the long side in the face of my long-discussed concerns on the financials! No, seriously, you can do anything as long as you're disciplined and this is as tight as it gets ($65). Besides, I can't imagine that it'll take too long for the "management shake-up" chatter to stir.

  • My goodness--do you see Countrywide (CFC) getting Bar Mitzvah'd ($13-ish, -9%)? If grandma gave Angelo any savings bonds, he may wanna think about cashing them in at this point. Don't blink or you might miss the Bank America (BAC) write-down.

  • Woah---I just spied Altera (ALTR) (-15%). Yeah, I know--thanks scoop! ANYWAY, as this PLD is 4.5% of the SOX--and as the semis trace out some dandruff in the context of a multiyear pennant--please keep these names on your radar. We spoke yesterday about the narrowing tech breadth and as the master betas slowly get taken out and shot (Amazon (AMZN) -14%), more and more eyes will migrate to this traditional tech tech.

  • Wow, that was yesterday? My Gawd. Anyway, thanks for bearing with me as I juggle multiple roles. As a thanks, here's a sneak peak at tomorrow's Hoofy & Boo episode. It's pretty risque but, heck, even critters are allowed to be in a mood sometimes!

  • Trad to win--never trade "not to lose"--and rremember, discipline over conviction.

Well then, there ya go! - 10:55 AM

No sooner did I opine to our crack editorial squad that "If Merrill breaks $65, this tape has a lot more problems than Merrill." It did, and it seemingly does.

Either way, and as discipline trumps conviction, I was stopped quicker than I was on prom night (and that was quick). Took a hickey but hey, it's the price of doing business.

And just to be sure that I don't get double-whammied by a drop & pop, I'm gonna make some token sales on my S&P puts and Goldman puts, leaving some (but not an outsized amount) of both.

Are we having fun yet?

Of Mice and Men - 11:25 AM

  • Merrill, Bear Stearns (BSC) and Lehman (LEH) are all down 30% year-to-date while Goldman is up 8%? Goldman is best of breed but not to the tune of 38%! I smell a pairs trade for convergence. Just saying.

  • Do they have a ringtone that warns about S&P after-the-fact downgrades?

  • Still sending white light to our SoCal friends. I had a disturbing deja vu just now about waiting for calls and the gratitude of friendship.

  • You kinda figured it was bound to happen, right? My wires are lighting up with rumors of 11-figure write-downs in the banks. Do I think they're true? Ultimately and inevitably, yes--but it's a function of time (and price). I will say that, traditionally, this type of chatter precedes a near-term bounce.

  • I'm not playing 'em that way but I AM, so you know, using trailing stops on my remaining puts (despite my sense that it's gonna be a bumpy ride into baby new year).

  • Rudy Guliani is backing the Sox? Mr. President, you've got bigger problems than losing me. You just lost my vote. (I'm just kidding---he never had my vote!)

  • This morning's column really struck a nerve. Interesting as that column couldn't (and wouldn't) have been published a few years ago. That speaks volumes about what inning of the game we're in, no?

  • Pitch tent in St. Fiacrius Court? Not I, said Todd...

  • As always, I hope this finds you well.


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Position in GS, S&P, MER
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