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Monday Morning Quarterback: A Conversation with Hoofy and Boo


Bulls and Bears square off into the home stretch of 2009.


Time is measured many ways but through the lens of the financial markets, the last ten years have been nothing short of remarkable.

In the blink of an eye, the decade will have ended and what a stretch it was.

We watched technology stocks rocket to the moon and come crashing back to earth.

We witnessed bipolar disorder in real estate with a manic craze followed by a depressing phase.

China held the key to world prosperity before the globalization sword swung the other way.

Crude was a perceived safe haven before we learned the difference between a hiding spot and a safe-haven.

It's been the best of times and worst of times time and time again but there is one thing it never was: boring.

Click to enlarge

History will describe this decade as a time when many lost their way and followed the Pied Piper of immediate gratification, losing sight of what truly mattered and why. That's not to say we all transgressed but few emerged unscathed with little, if any, regret as the Age of Austerity arrived

While I plan to delve deeper into these topics later this week before I selfishly scoot to a much-needed year-end respite, I turned back the clock this weekend and spent some time with a few old friends.

As rain soaked Manhattan and the holidays loomed large, I sat with Hoofy and Boo for their take as they gazed out on the horizon. The conversation went a bit like this:

Toddo: When I started Minyanville, we used to frequently communicate our conversations to ye faithful. You've been busy entertaining -- congrats on your Emmy, by the way -- but as true education resides in the residual grist of variant views, I thought it might be beneficial to examine both sides of the current equation. What do you see as we edge into year-end and beyond?

Hoofy: Nobody will argue against the fact that Boo was spot-on with his analysis. Over the course of the last ten years, stock market returns have been muted at best and abysmal at worst, if the performance of the US Dollar is factored in. That was then and this is now, however, and nobody has ever made money looking in the rear-view mirror.

Ironically, the conditioned negativity is perhaps one of the most bullish elements of the current environment. One need only look at the corporate bond market, which proactively signaled the collapse in equities and is now forecasting blue skies. The sheer magnitude of injected liquidity, whether you agree with it or not, shifted risk further out on the time continuum and therein lies our upside window of opportunity.

Shorter-term, the sideways action over the last six weeks worked off the overbought condition as a function of time rather than price. We all see S&P 1120, the downtrend line from the 2007 highs and a 50% retracement of the entire decline, but the bulls have now refilled their gas tanks with the energy needed to push through to the upside, trigger a new round of short-covering and make S&P 1200-1250 a legitimate target in the first quarter of 2010.

Boo: That's precisely what I want to hear as the pendulum of psychology swings from the abject fear we saw in March to the "all is well" mindset making the rounds today. The fact that risk-taking behavior is back is, by definition, more bullish than bearish. Everyone and their sister has the carry trade on right now -- short the dollar and long asset classes against it. When the greenback gets its groove back, Stella will take it on the chin. Crowded trades can work for a while but they rarely reward the masses.

Hoofy is correct that perception is reality and investors are edging out along the risk curve. That said, this is a mean-reverting cyclical rally in the context of a more pervasive secular bear market and that context is important to remember. There are no magic pills for the cumulative imbalances that remain in place or the interwoven derivative machination that continues to tie together this fragile world. Keep that in mind as you hear of seemingly opaque issues in far-away lands such as Dubai, Eastern Europe, and South America.

In the near-term, I'm watching the action in the financials as they led us higher and have under-performed of late. As long as that remains in play -- and as we remain under aforementioned resistance -- the bears have nice and tight defined risk with which to place their bets. And if the dollar continues to lift, that'll provide the icing on the ursine cake.

Toddo: Thanks guys, it's always good to see both sides. I wish you the very best for a healthy and happy holiday stretch.

Some Random Thoughts


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Position in S&P

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at

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