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Random Thoughts: Readying For the Hump Day Hike

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Position wisely into the week's latter half.

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  • In July, when crude was hovering around $140, we offered that it would likely trade to par ($100) into the election as part of a coordinated agenda. We also warned that, at a point, sentiment would shift from the decline being an implied "tax-break" to it being endemic of slowing global growth.

  • Minyanville has been all over that non-correlation--Professor Scott Reamer first spoke about this years ago--and we've consistently banged the drum (the ten year correlation between the two asset classes is -0.04). Old habits--or, in this case, conditioned belief patterns are hard to break, as evidenced by the pushback that continues to exist.

  • This morning, The Wall Street Journal, New York Times and Financial Times are all featuring front page spreads devoted to this precise dynamic--that precipitously lower crude is indeed problematic. I don't share this as a victory lap--that's never been our style in the 'Ville--but rather to again remind ye faithful to think about "why" rather than simply "what."

  • With that myth seemingly debunked, I will draw your attention to the next major misperception--that a stronger dollar will be equity positive. If that's the case, how does one explain the 40% peak to trough decline in the greenback since 2002 and the attendant ramp in assets classes as a whole?

  • We've spoken about this a lot as well and, sans acrimony, I'll offer that by the time it becomes front page news, Minyans will have once again been well warned.

  • On August 22nd, we picked up chatter that a $3 billion commodity based hedge fund was shuttering its doors. This morning, we found out exactly who it was.

  • After actively trading around smaller positions yesterday--buying dips, selling blips, hittin', quittin' and keeping lotsa powder dry--I enter today's fray long some USO calls (50% of my position vs. buying yesterday's opening), American Express (AXP) puts (a starter position consistent with our "phase" thesis), a snivlet of Morgan Stanley (MS) puts (bought when I saw Merrill Lynch (MER) flip the crimson switch), an odd-lot of Baidu (BIDU) puts and a pared Yahoo (YHOO) call position (sans a discernible catalyst).

  • Speaking of the phase thesis, we spoke last week about Retail Therapy or, in other words, how retailers might need a therapist come holiday season. Word on the street is that a rather large mutual fund company has been accumulating large stakes in the sector. I won't name names but I will say that I heard a similar story (about the same fund) five years ago when they were gobbling up Fannie Mae (FNM).

  • The "underneath puts" were bought during yesterday's morning rip higher in an attempt to initiate starter positions in front of what I perceive to be a critical month for the markets.

  • I'm not married to anything, so you know, and will trade 'em as I see 'em with an eye towards capital preservation. While I expect some downside, I respect the upside as a function of "unforeseen announcements" by the powers that be.

  • Don't hate the player, hate the game, right?

  • The doors to Festivus 2008 are officially open! Lock your spot for the critter trot as last year's soiree sold out. This is our annual event to commingle our professors, partners and Minyans while chowing down and listening to live music. The very best part? It's for the kids in the good name of my grandfather.



  • Good luck Minyans--let's hit this Hump hard!


R.P.

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Positions in USO, MS, AXP, YHOO, BIDU
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