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Monday Morning Quarterback: Friend of the Devil

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The markets react to S&P 666 and GE $6.66

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"How do you shoot the devil in the back? What if you miss?" --Verbal Kint, The Usual Suspects

All in all, last week was just another brick in the wall. The question we must now answer is whether it's a wall of worry to be scaled to the upside or a thick brick ready to hit us in the head.

We pride ourselves on seeing both sides in the 'Ville, particularly when the implications are this massive. Never before in history have we sat at such a critical crossroads with the very survival of "free market" capitalism at stake.

Make no mistake, there are two sides despite the one-sided action of late. Therein lies our task at hand, survival first and foremost in the form of Financial Staying Power, and prosperity in the shape of profits trailing closely behind.

It's a one-two punch, but you gotta be in it to win it.

Friday morning, Pepe Depew noted the importance of S&P 705 on a closing basis. Despite the late-day Miracle, that stone was left unturned, introducing the specter of a further flush, and one that must be respected.

For my part, I've been operating from the long side with one eye on discipline and the other on the six-handle of the S&P. Perhaps being "early" in seeing this mess has clouded my judgment (as the point of recognition permeates the societal structural) but I've always tried to use price to my advantage.

Simply put, you need to operate within your comfort zone while allowing ample margin for error. I'm there-or, at least I think I am-with upside exposure in my nimble short-term account, plenty of dry powder behind and my finger on the trigger with a longer-term lens. Again, it's not for everyone but I'll always share my fare with truth and care.

One day, I'm sure we'll look back on this and it will all seem funny but for now, it's time to dig deep, shoot straight and march forward. Tomorrow is promised to nobody but today is in our hands. Let's start this week with a smile on our puss and some jingle in our jeans.

Random Thoughts:

  • Bedazzled? Perhaps it's nonsensical but last week's dual ticks at S&P 666 and General Electric (GE) $6.66 didn't pass unnoticed by those of us who notice such things.

  • The catalyst on everyone's radar this week is Thursday's House Financial Services subcommittee meeting on mark-to-market accounting.

  • While relaxation of the accounting standards is "more drugs, less medicine," the knee-jerk reaction should be to the upside. The question we must wrestle with is whether we see that trade into the meeting or coming out of it, if at all.

  • Current vehicles in my trading account-not advice and subject to change on a dime-include: FAS (cost basis $3ish and gone by the end of the week), General Electric calls (kick-save play), SSO calls (added Friday, held into the weekend), Wells Fargo (WFC) calls (small, through the same lens as the other financial instruments) and placeholder positions in Dryships (DRYS) and Yahoo (YHOO).

  • In the "for what it's worth department, the Toddo Sleep-O-Meter was ablaze last night, with nary a wink for more than an hour at a time. If confirmation was needed that something big was afoot, I now have it.

  • This morning's merger between Merck (MRK) and Schering Plough (SGP) is on the margin bullish, particularly given that $8.5 billion of the financing was provided by JP Morgan (JPM).

  • If you haven't read Friday's 5 Things regarding the structural shift of social mood and risk appetites, you're missing the bigger picture.

  • Keep Mexico on your radar, por favor.

  • Action speaks louder than friendship? Bill Gates' Foundation dumped its Berkshire Hathaway (BRK-A) holdings.

  • Keep an eye on the greenback. As we often say in the 'Ville, a lower dollar is a necessary precursor-but no guarantor of-higher asset classes. It's that whole Wishbone World thang and worthy of a mention given the early upside action.

  • While anecdotal, many casual market observers (read: those who didn't "care" when I warned them entering September that something seismic was afoot) pinged Friday to let me know they finally went "all cash."

  • Wouldn't it have been entirely more helpful to have that chat in, say, 2006?


Have a great week, Minyans, and remember that profitability begins within!

R.P.

Positions in DRYS, FAS, GE, SSO, WFC, YHOO
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