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Randoms: Bear Market Costume Update


The goal of any trade is to use price to your advantage.

  • As financial media continues to weigh alternative content strategies, I'll again offer that the solution to the most deflationary invention in world history-the Internet-is tiered content that allows your audience to shape their experience while maintaining the integrity of the content and a consistent brand message.

  • It's not unlike the cable model-there are thousands of channels but folks will pay for HBO if they want to watch Entourage. Financial media has a unique competitive advantage in this regard as there is pricing power for financial intelligence. That's what we strive for in the 'Ville; much of our content is free (Minyanland for kids and Minyanville for the masses) and we've got a host of premium products if that's what floats your boat.

  • And we're big believers in the "input-output" media model. There's no difference between keyboards, phone pads or remote controls as input devices or computer screens, phone screen, plasmas or movie screens as output devices. The ability to seamlessly traverse these mediums-agile content is king-will define the winners of the digital world

  • With the NASDAQ down 45 (COMP 1938) this morning, I picked at my short-side tech exposure (which was added at COMP 2007). My Powershares (QQQQ) put options were a healthy mix of in-the-money and at-the-money puts and I jettisoned the deeps and kept most of the others (my S&P puts were also sold). As such, a leg came out of the bear costume, leaving one leg (25% conviction on this particular trade).

  • That's a different conversation than "are we going lower?" This bet was all about what was perceived at the time as the most compelling risk-reward of 2009. My most profitable trading this year has been when I hit for average rather than power ("hit it to quit it") so I have not problem returning to that style, particularly given my Colorado camping plans the week before Labor Day.

  • For purposes of my metaphorical fur, I'll remove the last leg on the other side of this morning's opening gap (let's call it NDX 1585). That's not to say I'll be completely naked, so to speak, but I take delicate care of these costumes as they're old school and only used in special situations.

  • Taking a step back, if you were to ask where an intuitive support for the tape resides, I would respond as I did last week-S&P 950, as a first stop. That's where we broke out following the long-standing channel between S&P 875 and 950 and past support is future resistance.

  • Given the Shallow Hal tendencies of late, everyone and their sister expected a Snapper attempt out of this morning's gate considering the deep-dive decline. The fact that we didn't see a that bounce attempt is a change of tenor for the tape (we would be wise to expect one given prevalent psychology, if not today than most certainly on Turnaround Tuesday).

  • The mainstream media is pointing to Lowe's (LOW) as the downside catalyst this morning. Anyone who was watching the world late last night or early this morning would tell you that the decline (first in Asia, then Europe and finally in the pre-market futures) preceded the home improvement center.

  • There are certain sports movies I never tire of watching. Miracle is most certainly one of them and I would add The Express to that list as well. The story of Ernie Davis (of Syracuse fame) is inspiring indeed.

  • Pepe Depew forwarded me this link, which I included in my morning missive. I think it's rather apt given the "all clear" signal recently given by the global economist community.

  • Minyan Dougie Kass and I will be Roaring for a Cure this Saturday afternoon in East Hampton. Area Minyans are encouraged to join us as we do our part to affect positive change.

  • Remember friends, expiration influences typically manifest in the days preceding the actual put and call funerals through exacerbated volatility. In other words, the next few days could have more swings than a Hedonism vacation!

And finally, the following Buzz posted this morning from Minyan Peter, our resident Bank Sage:

Regarding John Paulson's purchase of BofA (BAC) stock, just a reminder that the filings are as of June 30 (45 days ago) and reflect purchases made since March 31. During the second quarter BofA stock ranged from about $8-12 per share. So, roughly speaking, Mr Paulson is up anywhere from 50-100%.

Somehow I can't get out of my mind the image of Mr. Paulson's trading team waiting for the public release of the BofA filings and retail's stampede into the stock as the perfect cover to stage an exit.

Second, on the accounting front, I think it will be years before we see international consistency for fair value accounting.

On the other hand I would remind Minyans that in early March the question in investor minds was not how much will the banks earn in 2009 (let alone 2010) but what are the banks' real book values and how under capitalized are they.

I raise this because right now no one I know is focused on the banks' balance sheets, just their forward earnings. But you can't have great earnings in the future without great balance sheets today and one need only look at the enormous losses being taken by the FDIC every time another bank fails to see that the gap between reported asset values and true asset values is sizable.

And, with or without fair value accounting someday that gap will have to flow through GAAP earnings. (Minyan Peter has positions in SKF.)


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