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Monday Morning Quarterback: Hank Goes Deep!

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Treasury takes a step toward recovery.

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Autumn Sundays. A time to kick back with friends, pop a few brews, huddle for the game and watch the action unfold.

And what a game it is!

Last week in our financial pigskin preview, we highlighted Washington offensive coordinator Hank Paulson and his penchant for big plays.

His market timing patterns were prepared in the off-season and it's apropos that his biggest play came on opening day.

Minyanville has long monitored the chronic injuries of Fannie Mae (FNM) and Freddie Mac (FRE), forecasting years ago that these two troubled receivers would one day retire.

That loud "snap" you heard ended long and illustrious careers that enriched the establishment and left the rest of us nursing a bruise.

As fans throughout the land gathered around gridiron, they were quietly carted off the field.

An End Zone dance isn't in order. It's not our style to take pleasure in other people's pain, particularly when many of them haven't been born yet.

That was then, this is now and we must prepare for what's to come.

Off-sides, on the Offense…

One of the reasons this game is so hard is that the rules continue to change in the middle of a play.

We've talked about the anatomy of the recession.

We've eyed the wishbone world.

We've monitored the moral hazard.

We've asked the whether the credit unwind will be a cancer or a car crash.

One involves administering drugs with hopes of masking the disease until legitimate recovery takes root.

The other involves taking the inevitable and unenviable medicine of time and price.

Each has implications for the path that we take to get the unavoidable destination of debt destruction.

This bailout is the latest in a series of socialized steps that includes invisible hands, auction facilities, government assisted take-unders and collateral shifts at the discount window.

It is by far the biggest, but it is by no means the last.

There are hundreds of billions of dollars in debt coming due in the next few months and the appetite for that will dictate the direction of equities.

The sigh of relief you hear is a gasping gap higher in pre-market futures.

That will help the thermometer of psychology but the backbone of debt remains diseased until proven otherwise.

First down and billions of dollars to go…

The Twelfth Man

We know that if the government had its druthers, it would opt for inflation (through a lower dollar) over watershed and all consuming deflation.

They've been operating with that mindset since the back of the tech bubble as the middle class steadily eroded and the chasm between have's and have not's continued to build.

The wildcard race is the greenback through the lens of foreign holders of dollar denominated assets. They're FED up and I mean that in the most literal way.

We've been of the opinion that the dollar would strengthen and-more importantly-we've highlighted the risk to asset classes if that were to occur.

The other side of that trade is hyperinflation, which seems to be the Hail Mary we're now seeing. Success depends on the defensive actions by foreign holders of dollar-denominated assets.

In other words, even if Washington plays a perfect game, we could all lose by the end of the season.

The "good" news for the systemic structure is that the elephants in the room-Fannie and Freddie-have been addressed and that should stabilize the system.

That was a necessary step- acceptance if you will-on the way to the "inside-out" globalization themed recovery that will evolve in a few years.

The next step-as discussed-is the September debt issuance and how that is digested.

Play the prevent defense of discipline over conviction, Minyans, as the goal is to stay in the game.

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Positions in GE, GIS, KO, SHLD, WMT, USO
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