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Monday Morning Quarterback: The Future is Now!


Nothing comes easily in a bear market.


"What is love? Baby don't hurt me, don't hurt me, no more." --Haddaway

Did you ever get a feeling that something big was about to happen?

I have-several times. I couldn't sleep the night of September 10th, 2001, my antennae vibed hard when we entered September and last Wednesday, for some strange reason, I sensed that a monster move would soon arrive.

As offered in real-time on Minyanville,
my gut was that, contrary to every tangible road sign, we could see a counter-trend bear market rally as we edge along the path of maximum frustration. That lift, if it was to occur, fit within the window of opportunity discussed when the year began.

Those seeds seemingly sowed Thursday and Friday as traders weighed the looming stimuli from Washington. The unfortunate truth, however, is that the lift into the news will likely be viewed as the easy trade with the benefit of hindsight.

We don't mind offering forward-looking market prognostications in the 'Ville. Indeed, over the last several years, we've consistently put our name on the line with hopes of helping Minyans find their way. Sometimes right, sometimes wrong, always honest.

As we enter what promises to be a freaky week, I'll ask ye faithful to see both sides as we ready to exhale. There is tremendous two-sided risk and while I'm not changing my tune, I plan to sing (trade) in such a way that allows me to prosper if I'm right and protect my voice (capital) if I'm not.

What Was and What Will Be

The New York Times reported over the weekend we should expect several more shoes to drop: The global recession will choke off exports from the U.S., wage growth would reverse (further crimping consumers) and the banking system should expect another $1-3 trillion in losses tied to housing market.

"The sweeping job losses… and the extent and speed are depression-like," Allen Sinai, chief economist at Decision Economics, was quoted as saying.

We don't necessarily disagree-we spoke about a prolonged socioeconomic malaise entirely more depressing than a recession in 2005-but the destination we arrive at pales in comparison to the path we take to get there. Therein lies the trick to the trade and the chasm between perception and reality where profitability resides.

There was also an article on commercial real estate, highlighting the 2007 Sam Zell sale of Equity Office Properties Trust to Blackstone (BX) for $39 billion and the subsequent resale of many of those properties. The impact, according to the author, would create another financial crisis that ripples through investment banks, hedge funds and insurance companies that bought them.

This was actually one of the ten themes MV vibed at the beginning of 2007 (always early in the 'Ville) and I share it to highlight that markets are a forward-looking discounting mechanism. While the cancer may indeed be bigger than the economic patient, the risks to the system are hardly breaking news.

Respect the downside but don't trade what was, trade what will be.

Understand trap door risk remains but don't blindly bet on the next leg lower. That would be too easy and in bear markets, nothing is easy and nobody makes money.

Not even the bears.

Random Thoughts

  • Current vehicles include Bank America (BAC) (which I'm "trading around" following the 70% rally off Wednesday's intraday low), Morgan Stanley (MS) (acne above $20), Yahoo (YHOO) (with an eye towards monetization of its television audience) and a small crude position (with a conscious nod to geopolitical risk).

  • Someone once said that you can pick the direction or the timing of a move but you'll rarely nail both. I remind myself of that axiom often.

  • While I foresee two 20-25% rallies this year, our sense remains that S&P 600 could be the 2009 nadir, all else (the dollar) being equal. That's why I've dusted off 25% of my long-term nest egg as an "if-then."

  • Remember when Britney, Paris and Lindsay turned prior to the social mood surrounding the market? I wonder if we'll look back at A-Rod and M-Phelps much the same way.

  • While I don't agree with this as a "solution," the suspension of "mark-to-market" accounting rules may be a necessary precursor to our aforementioned spring sprint to S&P 1000.

  • "Toddo, have you noticed that lot of reflation trade bell weathers have shown dramatic technical improvement? Note the reverse head & shoulders in Potash (POT), Freeport McMoRan (FCX), Companhia Vale do Rio Doce (RIO), Petroleo Brasileiro (PBR), the triangle broken to the upside in EWZ and the pop in the Baltic Dry Index. Thanks for all you and the professors do!" --Minyan Gian Marco from Italia.

  • The obvious focus this week is the twin peeks from Washington (banking bill, stimulus package). As discussed, perhaps the single biggest positive is the widespread disbelief that anything will "matter" in terms of moving the needle. Big picture, perhaps that's right-you can't solve a debt bubble with more debt-but near-term, we need to appreciate the potential for an "off-sides." One thing is for certain, the legislation-or the perception thereof-must be sweeping and dynamic as any hint of hems or haws won't be well received by the marketplace.

  • Have a great week, Minyans, strap yourselves in!


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Positions in BAC, MS, YHOO, USO
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