Random Thoughts: Two Wildcards to Watch

Editor's Note: The following was posted in real time on our premium Buzz & Banter. It's being shared here for the benefit of the Minyanville community. See also Chicken Little Skinned?


Tricks and Treats - 9:15 am

No Nils, not Your Latest Trick, although some would say we're in Dire Straits. 

And no Keyser Soze, although we offered when the hand was still invisible that the greatest trick the devil ever pulled was convincing the world he didn't exist.

We're talking about the Depression Debate that is on every single media orifice. Forget the recession discussion--Pishaw, that's so last year!--popular perception has shifted to a more disturbing dynamic.

Old School Minyans--particularly those who traveled to Vail in 2006 for MIM3--know where I stand on this subject. We've entered "a prolonged period of socioeconomic malaise... entirely more depressing than a recession." Given the cumulative imbalances we've monitored since 2003, it would be inconsistent for me to suddenly shift that stance now that it's begun.

There's no denying that the system is broken and the credibility of our leadership is shot. Those are the structural and psychological metrics--the out-sized debt and derivatives mixed with social mood and risk appetites--that has scared the sprinkles out of us for oh-so-long.

Here's the rub. The destination we arrive at pales in comparison to the path that we take to get there. I've been a bit early (tongue in cheek) with my Matador City nibbles and I wont post-rationalize. I've hoarded dry powder for a reason, however, and I've layered into some risk as a function of price. Right or wrong, that's what I've done.

There are a few wildcards that warrant attention for the capital preservation camp. I dove deeply into them this morning--but I'll cliff note them for those time challenged.
 

• The path of maximum pain for most Americans plays out like this: The savers—those who sold stocks and/or preserved capital—get the double whammy if the dollar debases and everything denominated in dollars jacks higher. That’s the other side of Our Wishbone World and it may be unavoidable at this point. A seismic readjustment of the dollar is one of the few ways the global system can readjust.
  
  
• The CDS chalk board--which is by far the biggest fuse--could conceivably be wiped clean (for those without underlying collateral). I will be very clear--I don't support this--but under the International Emergency Economic Powers Act--they can do whatever they want and speculators, in their view, are likely acceptable casualties of war given the Main Street mood.

For my part, every journey is comprised of a series of steps and we'll find our way together. In that vein and as the final fifth of our freaky week is set to begin, I'll quickly share some top-line vibes:
 

• General Motors is saying "bankruptcy is not an option?" Uh, earth to Detroit, what makes you think that's your decision?
  
  
• Bank America (BAC) $22--where the secondary was priced--is newfound resistance. 
  
  
• For my part, I'm avoiding all financial exposure as the potential exists that current stockholder equity is wiped out (as a new, preferred share is issued). If I'm wrong, I'll participate through my other holdings (which includes Weatherford (WFT), Transocean (RIG), the OSX and QLD (edging back in).
  
  
• Most of my tries are through the common as vols are fatter than I am and I want the staying power. To be clear, I don't think the worst is behind us, I simply think there's a mongo rally at a point before lower levels manifest.
  
  
• As such, if the S's open anywhere around where they're currently indicated, consider my arm slipped into the bull costume, makes 75% conviction. I've been wrong before, mind you, but it's my most honest effort.
  
  
• The "easy" trade is likely the first rally attempt. The "hard" trade is the final thirty minutes.
  
  
• Good luck Minyans--operate within your comfort margin and please see all sides.

R.P.