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Random Thoughts: Heady Headlines


Is news worst at the bottom and best at the top?


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 What's Next for Wall Street?

All The News that Fit to Schvitz! - 10:07 am

Does anybody else not wanna pick up a newspaper anymore? I mean, Jeez, it's just plain nosty out there. A sampling:

  • "Worst Spending Slump Since 1942 Paces 'Scary' U.S Recession" --Bloomberg

  • "Eager Investors Buying U.S. Debt With Zero Yield To Protect Cash" --NYT

  • "World Hunger Soars" --Financial Times

  • "Illinois Governor Charged With Corruption" --WSJ

  • "GMAC Fails to Qualify as Bank Holding Company, Casting Doubt on Survival" --Bloomberg

  • "Sony raises Axe over 8,000 Jobs as Economy Worsens" --Chicago Chronicle

  • "Tough Times May Force Changes in Minnesota Pension Funds" --Star Tribune

  • "AIG Faces $10 Billion in Losses on Bad Bets" --WSJ

  • "James Tobin's Q Ratio Indicates "Horrific' Stock Market Bottom" --Bloomberg

  • "Bank of England Mulls "Nuclear Option" of Cash Injection" --Sign of the Times

  • "Luxury on Sale: The Lobster Glut" --NYT

Wait... lobsters on sale? I knew times were tough but lobsters? Is that kosher? Last year (and always early), Minyanville spoke about the looming credit crisis and the attendant shift in social mood and risk appetite. Forget the 100 year storm--we're talking about a 10,000 year storm here, a confluence of conundrums never before witnessed by human eyes.

As a card carrying contrarian, I'm schooled to believe that news is always best at a top and worst at a bottom. The flashing red asterisk here--and something that we've discussed for some time--is that , in many ways, the cancer is bigger than the economic patient. That point was driven home with a hammer yesterday when the yield on 3-month Treasury Bills traded negative for the first time in post-war history.

OK, so here's the situation--it's bad. Real bad. And it's gonna take years before this mess is cleaned up. Time, and price. Unemployment will dive deep into double digits, societal acrimony will shift to social unrest and perhaps, geopolitical conflict. Fortunes will be lost and friendships will be sacrificed.

It's the other side of the trade, the inevitable and cumulative consequences of an A.D.D. immediate gratification conspicuous consumption society. Yes, it's a mouthful but it's where we are and pretending it doesn't exist won't make it go away. Indeed, the fact that it's front page news may be one of the more constructive elements currently in play.

The upside of anger--and yes, there is one--is that we've been in the cleansing process for thirteen months and we're that much closer to recover. Further, as discussed on November 19th (20% ago, mind you), there are reasons for optimism into year-end. If the destination we arrive at pales in comparison to the path that we take to get there, the onus is on us to navigate this prickly and tricky path

I've been trading from the long side for the last few weeks, hitting to quit it and trying to squirrel away some acorns for the winter. I enter today's Hump with tertiary exposure in the energy sector and dry powder in my pocket. If someone were to ask me my "feel" here, I would say that I'm feeling... opportunistic and disciplined... while giving a "four digit" S&P by year-end a higher probability than most others likely would.

Unfortunately, this bug I'm fighting seems to be gaining strength and I was up most of the night wheezing and hacking and sweating--bad visual, I know, but I'm nothing if not honest. I'll continue to call 'em as I see 'em (coming soon to a Buzz near you) but I'll ask ye faithful to understand. I know, I know, I've been asking a lot lately but heck, it's been a very long year and I've literally run myself into the ground.

Calgon, take me away... and Minyans, fare ye well.

Razor Sharp! - 11:20 am

May I have your attention please. Mr. Hunter has brought it to my attention that morale may be a bit low. That you may be a bit... on edge. So I suggest this. Any crew member who feels he can't handle the situation can leave the ship right now! Gentlemen, we're at DEFCON three, war is imminent. This is the captain, that is all." --Capt Frank Ramsey, USS Alabama

No doubt, Frank, you can cut the tension with a knife. Indeed, it's so bad out there that the downside almost seems a tad too obvious, particularly after a 20% pop. What do do? Read the tea leaves, manage risk and remember, above all else, that we're here to preserve democracy, not practice it. Some top-line vibes:

  • As Minyans know, I've been constructive of late (after being in 'guns and butter' mode for the better part of the year). As I'm currently flattish and viewing the dew for two-sided clues.

  • The most bullish thing on my screen? Breadth, which finds two ahead for each stock red.

  • The most bearish thing on my screen? The financials, although they're more pink than purple. IF the tide slides, I expect those names to lead the bleed.

  • I continue to view General Electric (GE) with a scrunched nose. Remember, "financials in drag"--from GE to General Motors (GM) to Ford (F)--have been on our ruh-roh list for a really rong time. GE may indeed be too big to fail but there are alotta reasons that this stock should trade lower.

  • If I continue to downtick, do you think I would be eligible for government assistance?

  • Sector rotation seems to be back in play after months of monolithic movement. Through that lens, retail is for sale (Wal-Mart (WMT), Amazon (AMZN)) and commodities are to buy. Particularly gold, which is yielding more than 3-month T-bills (not saying much, I know).

  • Rob Roy and Rick Schottenfeld are some seriously smart cookies with valuable views on the hedge fund business.

  • When it rains it pours, at least in terms of time management. I've got a professor-to-be here in the office and I've gotta hop for a proper welcome. Speaking of which, as we're knee deep in mapping our 2009 editorial plan, I'll ask ye faithful--what would YOU like to see in the 'Ville that currently isn't covered?

Pete and Repeat - 12:04 pm

I step out of our Minyan meld--you're gonna like this fella as he's a sharp cookie in the convertible bond world---and saw that Professor Lance Lewis highlighted the DXY 84.5 level on the Buzz. Nice eyes, young man, as we tagged that potential catalyst yesterday and it should remain on ye radar.

The fly in the try remains the pink piggies but there are three reasons why the market should trade higher:

  1. We said yesterday that anything resembling firmness in the face of Turnaround Tuesday would be considered constructive.

  2. Breadth. Again, firmer than a college cheerleader.

  3. The dollar, below 85 (or 84.50, as the case may be).

  4. Performance Anxiety, as the buyers are higher (and the sellers are lower).

As it stands (and as I soak through another shirt), I'm watching not trading, particularly as I'll be doing the DC two-step tomorrow. Still, given a snapshot of what I'm seeing, the notion of a four figure S&P is gaining traction in my crowded keppe.

Engine room, more soup!


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