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Random Thoughts: The Credit-Equity Rubber Band Snap


If we see a giant move, which way will it go?

  • Not that there's anything wrong with that!

  • As I wrote in my opener, my antennae was red-lining in front of a massive move.

  • The technical metric supports a run through Red Dye but make no mistake, the risk is two-sided.

  • Let's call it the Credit-Equity rubber band, which is either gonna snap back or snap off. My sense is that whatever will be, will be rather soon.

  • The dollar is lower, which is potentially "bullish" for asset classes through the wishbone lens.

  • You know what trades Punky Brewster? The drillers, which we flagged yesterday as a potential negative divergence.

  • With crude stealing the triple digit headlines and the OSX making lower highs, the writing was seemingly on the wall.

  • Yesterday, when I appeared on FBN Happy Hour, I asked Cody if he was the drummer for the boy band Hanson.

  • That got me thinking--I'm gonna call him out on his aliases every Wednesday. Thus far, the list includes American Psycho Christian Bale, Footloose, Alex Keaton, Keanu, 8-Mile and Kurt Cobain. If Minyans wanna chime in, feel free!

  • Do you know what's crazy? The fact that former Fannie Mae (FNM) CEO Franklin Raines is still getting $1,000,000 per year. That, and Hank Paulson's tax-free sale of his Goldman Sachs (GS) stock, rubs my craw.

  • I asked Pep to pull up charts of the S&P, INDU and Russell. Once he did, I told him "If you flip all of those charts upside down, you'd be buying everything in sight. As it stands, this is classic churning under resistance." Technicals are but one of four primary metrics, we know, but it's a worthy exercise.

  • Auction rate sales continue to struggle. 186 out of 268 auctions failed yesterday. That's a failure rate of 69% (vs. 73% Tuesday and 80% Friday).

  • Stagflation made the front page of the Wall Street Journal today.

  • Answers I Really Wanna Know…

    • Why don't you just tell me the name of the movie you'd like to see?

    • Has anyone ever seen LL Cool J and Vitaliy in the same room at the same time?

    • You see how well gold is acting as the dollar drops?

    • How much of "scenario deux" is priced into current levels?

    • Who's this LOGIN guy and why is he on my computer every day?

    • Can anyone name a "Timothy" from the NFL, NHL, MLB and NBA? (seriously)

    • Wow, the semis are down 35% since last summer?

    • Do all these "Are we in a recession?" conversations have to stop before we find a bottom?

    • Does the front page stagflation chatter cement Minyanville's tag line of "the financial news you need to know before you know you need it?"

    • And, as I'm admittedly hangry after getting beat down this morning, what the heck's for lunch?

  • The following is an excerpt from BTIG Chief Market Strategist Mike O'Rourke, who I consider to be one of the sharper minds on the Street. We share this with his permission.

    It is a pretty sad state of affairs in the capital markets when a $2.2 Billion acquisition cannot be closed regardless of the reasons offered for the 3Com (COMS) deal falling apart. It appears that the throughout the market, when even the smallest opportunity emerges for private equity buyers to walk from a deal, they are now running for the exit.

    These days, the credit crunch is spreading like wildfire. The private equity crowd is not the only one walking away. Banks and brokers are walking away from obligations and customers at an alarming rate. Standard Chartered is the first bank to walk away from a SIV. Previous failures to date were non-bank structures. Wealthy retail investors, who are the prized clients of banks and brokers, cannot redeem their "cash" (ARS preferred) investments. It will be some time before deep pocketed individuals will buy a product with an acronym again.

    The reputational risk is enormous. Relationships which take years to cultivate are being fractured. It is a sure bet that these high net worth individuals are already in search of new brokers. There was a time in this industry when financial firms would stand behind commitments, especially to good clients, in order to protect the long term relationship even when not obligated. These days, if there is a loophole, financial firms across the board are seizing it.

    Right now, this every man for himself mentality has only a slight feel of panic to it but it is worth monitoring to see if the fear builds.


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