Monday Morning Running Back: Merger Monday Hits the Turf
A wild week lies ahead as acquisitions and the Fed take the stage.
Such is the fate for the bovine of late as they attempt to hit the upside hole. We've been watching the defense shift - TRAN 5000, DJIA 12800 (underfoot), NDX 1925 (right here), Russell 735 and S&P 1405 (above) - and all eyes now shift to a complex defense that includes the FOMC, GDP and April Employment Data.
We enter Minyan Stadium to find Merger Monday earning its name as Warren Buffett and Mars reportedly chew on a $22 billion bid for Wrigley (WWY) and Captain Kirk Kerkorian accumulated 100 million shares (4.7%) in Ford (F). Overseas markets are in watch and wait mode, as is the dollar, which is off marginally following the recent traction.
Hang onto your hats, friends, as we ready for the week we've been waiting for. Some random thoughts to get us going:
Most folks (68%) are expecting a 25 bip snip from the FOMC on Wednesday. The key will be the accompanying statement regarding future action and, perhaps, verbiage regarding some of their lending facilities. The Fed has an opportunity to shift from a "black check" backstop back to the lender of last resort. Whether or not they take it remains to be seen.
Some peeps have offered that the 'expedited stimuli checks' are responsible for Friday's bid to the market. That's the silliest thing I've heard since "Toddo, you don't like chocolate, do you?"
Yes, the VXO used to live in a lower range. The difference is, that period occurred when liquidity was being flushed through the system (liquidity is the opposite of volatility). I suppose one could argue that the trillion-dollar government injection (and no end in sight) makes for a similar situation. Perhaps, but the cumulative nature of debt and derivatives-not to mention the 40% decline in the dollar-creates a much thinner margin for error.
So, who bought ALL THOSE PUTS in Bear Stearns (BSC) days before the stock dropped like a rock? It's sorta weird how we never got an answer on that.
If something went down in Iran, how would the market react? I mean, the field position is drastically different than it was in March 2003, right?
Chatter abounds that Deutsche Bank (DB) and HBOS (the mortgage company) will tap the markets again for funding needs. Again, the collective "phew" in the market is that, well, there is a market. When psychology surrounds the dilutive and deflationary affects of this supply, it should shift sentiment anew.
A number of hedge fund managers, and S&P investment chiefs all called the bottom of the S&P last week. I know Minyanville has a slightly different position, e.g. smelling the other shoe lurking. Has this rush of enthusiasm changed the landscape of the near term market?
When we mused about "a" bottom on Bear Stearns (BSC), there weren't many other bulls on the Street. We offered, at the time, that it was likely that "a" bottom vs. "the" bottom. Gun to head, that continues to be my sense.
One of the reasons for optimism was that markets typically don't melt when everyone is looking for it. At the time, the fear factor was large and in charge. Now, following a 10% rally off the lows, Hoofy is starting to feel his oats just as resistance looms and after the VXO shed 45% of its value.
The trick to the current juncture is two-fold. First, technical affirmation above S&P 1405 (and the attendant episode of "Bulls Rush In") may be needed to secure the path of maximum frustration. Second, we've got a monster FOMC meeting looming (along with some important economic reports).
The psychology surrounding that reduced easing effort will tell this week's tale. If folks view it as the Fed is feeling more secure, it could spur the herd. If, instead, they wrap their arms around what we've been offering-that the Fed is running out of bullets and caught between inflation (things we need) and deflation (things we want)-the bloom will quickly fade from the rose.
For my part-and I understand not everyone has the same approach-I'm long situations I like (newspapers) and nibbling on some gamma against it (financials). At the end of the day, I wanna keep my risk defined and remain opportunistic. If I've learned anything in this tape, it's that no matter how much I think I know, I know very little.
Good luck, one and all. I'll see you on the Buzz.
Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at firstname.lastname@example.org.
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