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A Game of Chicken: Who Will Blink First?

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Nobody is bigger than the market.

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With the perfect storm that began the second quarter behind us-one that commingled newfound risk appetites in the hedge fund community, quarterly inflows at mutual funds and a shift in psychology due to the reaction to news (Lehman (LEH), UBS (UBS))-the powers that be ready to descend on the hill.

Ben Bernanke will be grilled during his congressional testimony about the Federal Reserve's role in the JP Morgan (JPM)-Bear Stearns (BSC) transaction. The lines of distinction between government and big business have been blurred, of course, and traders will be listening for further clues on the perceived Fed put.

Minyanville CMO Charlie Mangano offered an optimistic take on our current landscape, one that utilized his 180 years of experience. In his view, we've been through worse and we'll get through this. I have mad respect for Charlie and Minyans would be wise to assimilate his perspective. It remains my opinion, however, that we live in a historically unique juncture in financial history.

While being interviewed for Yahoo! Finance this morning, I offered that traditional trading approaches (fundamental, structural, psychological and technical metrics) have been replaced by one giant game on chicken. We've got structural imbalances on one side and socialization on the other. Nobody is bigger than the market but the timing of that blink remains tough to game.

Deleveraging is a process rather than a point and the great debt unwind will take years to manifest. That doesn't mean we can't rally, of course, and as traders, the destination we arrive at isn't as important as the path that we take to get there. Through that lens, I continue to cast a wary glance towards upside resistance (S&P 1405, DJIA 12,800) as I choke up on my risk.

Some Random Thoughts as we scramble our eggs:

  • Who knew that MV Editor Terry Woo and Anita Ward had the same dance moves?

  • I've been trading with smaller size (as a function of volatility) and fewer positions (in an attempt to focus). Recent schnitzels include a handful of puts in Baidu (BIDU) (defined risk at $300) and IBM (IBM) (trades funky) but fair warning, I'm In-N-Out more than a double double with cheese and that posture is subject to change.

  • If you're not reading Mr. Practical, you're depriving yourself of some sage observations from the smartest man I've ever met.

  • I've been busting hump on this Minyan thing for so long-and was reaching for the cash register before that-I recently opened my eyes and suddenly realized that it's already 2008.

  • There is a fine line between rationalizing risk and trading around a bad position.

  • Do you wiggle and jiggle like gelatin? Minyanville President Kevin Wassong will be kicking off our annual drive to drop libbies today. Stay tuned for your opportunity to get in shape alongside us.

  • With crude again holding par ($100) yesterday, I was stopped out of my driller puts. Lately it's felt a lot like my high school prom. Alotta attempts and nothing but Heisman.

  • You wanna see a momentum stock? Check out Minyanland, which is hockey-sticking its way towards 40,000 kids in a hurry. At this pace, a six-figure tick by my birthday doesn't seem so far-fetched.

  • Has anybody seen Cody Willard and Kurt Cobain in the same room at the same time? Hands over eyes.

  • For all the newbie Minyans in the hood, zis is R.P. And that is how we roll.

  • I'm getting completely snookered by Phoebe, who is taking advantage of any and all situations at Chez Harrison.

  • Nobody has said the word "pre-announcement" in a while. Wait, is that two words?

  • Hit 'em hard Minyans, we're almost there.


R.P.

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Positions in IBM, BIDU
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