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Quarter-End Agendas Collide on Wall Street

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The "OPM Syndrome" is in full effect.

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For those of you who haven't managed a large fund -- which is likely a fairly large swath of our audience -- let me share a little insight regarding the dynamic currently in play.

Portfolio managers who run OPM (Other People's Money) have four days circled each calendar year: March 31st, June 30th, September 30th, and December 31st.

That's when they're measured; it's the equivalent of a mid-term test that determines your entire grade, the seventh game of the World Series, the Super Bowl, March Madness, and the split second after you first to say "I love you" in a new relationship all rolled into one.

When I was president at Cramer Berkowitz -- a $400 million fund -- those four days were the single most important days of our careers, each and every time, year after year. I'll sheepishly share that at the time, they were actually the most important days of our lives, although that seems silly with the benefit of hindsight.

Suffice to say they matter; they count -- for money managers, they're everything.

One of the most depressing dynamics on Wall Street is the nonsensical notion of relative performance. It's entirely alright for fund managers to lose money as long as everyone else does. If, however, they make money but other folks, or the benchmark averages, make more money? That's the black plague of high finance -- off with their head!

I remember with great clarity how a double-digit return -- let's say, 15% -- earned you all-star status in 2000, 2001, or 2002 but that same performance triggered redemptions in 2003. There's an old adage that you're only as good as your last trade -- and to an extent, that's true. The end of each quarter is the living, breathing manifestation of that, and it leads to rather emotional decisions.

As such, the buyers are typically higher and the sellers are usually lower, which is absurd at its face but a reality we must acknowledge. If nothing else, and I've said this before, please understand there are agendas and protocols in place -- more so than usual, and that's saying something -- so tread carefully as the games people play are broadcast in real-time.

Random Thoughts

  • While the fate of my downside schnitzel in the banks is still in flux. I initiated my risk slightly above BKX 52, and set a tight stop above BKX 53. I know better than to count my chips while the cards are still being dealt, but I share this for a reason. If I shorted S&P yesterday (using the BKX as my defined risk proxy), I would have been camel-clutched.

  • These positions, and risk as a whole, are being discussed in real-time on our tremendous Buzz & Banter. And speaking of which, if you haven't sniffed out our spanking brand new MVP section -- that's Minyanville Professional Services -- take a look! Our mission is to add value all the way up the learning ladder.

  • Who do I speak with about soliciting croutons for an exemption from a low-carb diet?

  • I would ask how much of 'that' is quarter-end gamesmanship, but isn't the inflow/outflow dynamic that begins the (second) quarter more important through a forward-looking lens?

  • Is Goldman (GS) (into $160 and in general) the key to the forward vault?

  • I had a drink with a prominent financial journalist and he lamented about his needing to formulate an opinion on a weekly basis. Wait, do you hear that?

  • $400 billion found its way into the corporate bond market this quarter. Respect that action, even if you don't agree with it. Some of the sharper cookies in the space believe that the credit bull has a few years to go (before a bust that'll make 2008 look like a walk in the park).

  • The VXO is trying to hold sweet sixteen. Nuts.

  • Apple (AAPL) matters; I mean, a pear would matter if it boasted a 20% weighting in the NDX. I'm keeping an eye on the other high-beta stocks as well -- the bang-for-the-buck plays into quarter-end, such as Netflix (NFLX), Salesforce.com (CRM), Google (GOOG), and Amazon (AMZN) -- once the first quarter books close and risk rotates anew.

  • The semis are sluggish after slamming their head on their 50-day moving average. Let's pencil SOX 440-445 as near-term resistance and keep an eye on the price action. Sometimes you can learn a lot just by watching.

  • The key to successful financial decisions? Removed emotion from the process and clear the mechanism daily.

  • Bloomberg is reporting that optimism among US CEO's is at the highest level since before the crisis, which is interesting when juxtaposed against the ratio of insider sales to inside buys.

  • As always, I hope this finds you well.

R.P.

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