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Monday Morning Quarterback

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With the first two quarters under our belt, it's time to unwind the hand we've been dealt.

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When she says she wants forgiveness
It's such a clever masquerade
She's so good with her stiletto
You don't even see the blade

(Billy Joel)


Good morning and welcome back to the flickering pack. With the first two quarters under our belt, it's time to unwind the hand we've been dealt.

Benchmark performances are locked and loaded for the front nine of '07, with the mainstay proxies notching 7ish% gains. Strong first half, no doubt, as the pace car points to double digit gains anew. The bovine gotta feel good about their prospects, particularly given the angst of late and the proverbial wall of worry.

Still, the caveat in our midst and the key to the vault isn't what's seen on our screens, it's what lies beneath them. As quarter-end letters hit the mail, the question we must ascertain is whether the multitude of funds invested in the trillion dollar CDO space eluded the dreaded mark-to-market.

If they did, they've got another three months of shelf life, one more quarter to play the game and claim their fame. If not, the daunting dominoes have already begun to tumble and we'll start hearing horror stories in the coming weeks.

Why would that matter to you? Because in an interwoven financial fabric tied together by hundreds of trillions of dollars worth of derivatives, the sword swings both ways. And just as you didn't have to be involved in private equity to benefit from the LBO boom, you don't need to be subjected to sub-prime to suffer from the fall-out.

Random Thoughts into the holiday week…

  • The key tell on Friday, once again, was the financials as GS, LEH, MER, BAC and BSC all flipped the early downside switch as the broader market was probing the highs. Rotation out of laggards (so fund managers didn't show 'em on their sheets) or endemic of something entirely naughtier? The answer to that question will pave the way for the holiday week.

  • In Level Land, S&P 1510 (fitty-day) and BKX 114 (churning below?) are the tightest technical lenses. S&P 1490, the level defended last Wednesday and late Friday, remains the ripcord of lore for critters galore.

  • I'm not loving Entourage of late but I will say that John from Cincinnati is beginning to garner favor. And no, I'm not talking Succo although there are indeed several snazzy similarities.

  • It'll be uber-thin this week (particularly Thursday and Friday) and that'll open the door for increased volatility. Allow for that through smaller positioning as the last place you wanna see fireworks is on your bottom line.

  • Good luck this week, Minyans-let's do this!


R.P.

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