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Monday Morning Quarterback


Be smart, remain disciplined and remember that opportunities are made up easier than losses.


Well someone told me yesterday
That when you throw your love away
You act as if you don't care
You look as if you're going somewhere

Good morning and welcome back to the insecure pack. With our requisite respite in the rear-view, the oh-so-Lonely bulls belly up to the bar looking for love. You can't blame them for being a bit insecure. They were jilted and jolted by last week's supply, grasping for gains and gasping for air as bids vanished into the weekend.

You know the south-side story by now - credit concerns, re-pricing of risk, mark-to-market, forced selling, deal backlog, technical breaks and fugly action in the financials. The question, at least for today's action, is whether these influences have become obvious enough to point the path of maximum frustration back towards the black.

I spoke to several sales desk-heads over the weekend and they were consistent in their message that risk-reduction (from "Top Five" accounts) and forced selling (liquidation) were in play during Friday's final hour. The laundry list of sellers read like a "who's who" in hedge fund land, with the majority of the tickets stamped as long sales.

We're hearing a lot of chatter that the "long-awaiting ten percent correction" has arrived and, for holders of the banks and small-caps, that is indeed true. The BKX and RLX, both negative on the year, are roughly 10% off their 2007 highs.

Translating that to the S&P, which is currently hovering near oft-mentioned support at 1460, a similar shave would place the index around 1400. The 200-day, a level not touched since the summer of '05, will also come into play at 1448.

Whether or not we get there in a straight-line (or at all) remains to be seen. The point-and yes there is one-is that perspective is necessary as we continue to find our way. Yes it felt ugly last week and sure it was the steepest decline in years. Given the magnitude of the rally, however, we're far from "panic" in the context of our "denial-migration-panic" tri-fecta.

Be smart, remain disciplined and remember that opportunities are made up easier than losses.

Random Thoughts

  • The long-standing rally has conditioned folks to believe that the dip shtick is good and think, as evidenced by several high profile bears playing for a bounce last week. In the interest of honesty, I also tried my hand at the long-side stand but reduced risk and traded around some not-so-hot exposure.

  • Turn those machines back on! 28 buybacks totaling $11.5 billion were announced on Thursday, the highest amount on a single day since the market reopened after the September 11 terrorist attacks.

  • Mistakes vs. Lessons. If the debt bubble is indeed popping, some perspective is necessary. It took best in breed many years to regain their footing and the real estate debate, in the midst of widespread denial, continues to this day.

  • Earlier this year, the bearish bent was focused on the Phantom of Deflation. This time around, the concerns are a bit more tangible as they're manifesting across Wall Street portfolios. Both are "structural metrics" but the latter matter has been quicker to shift from perception to reality.

  • Who'll stop the rain? Look for "done deals" to act as a potential upside catalyst. The backlog is building, granted, but sentiment in the M&A space is mighty negative. A few headlines could conceivably act as a spark in the dark and shift psychology.

  • American Home Mortgage (AHM) announced on Friday night that they were suspending dividend payments, seeing major write-downs in its portfolio and significant margin calls from its warehouse banks. As we've discussed this name before (they have huge counter-party risk throughout the Street), we wanted to keep it on ye radar.

  • Some of my hedge fund brethren are telling me that prime brokers are raising margin requirements for certain hedge funds. This is consistent with "risk reduction" but could conceivably increase the supply side of the market equation (particularly in the final hour of each session).

  • The financials weighting in the S&P is below 20% as of Friday while energy is up to 11.2%. I've long believed that energy would reclaim the fame of "highest weighted sector" and that transition continues to continue.

  • And finally, after an enjoyable respite in Boston for the Police concert and attendant functions, I spent over eight hours at Logan trying to secure my flight back to NYC. Is it me or is the quality of air travel deep diving off a cliff? This has nothing to do with the market, I know, but I had to vent somewhere-it's nuts!

  • Hit 'em hard this week Minyans-big things ahead!


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