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The Greatest Market Head-Fake of All-Time?


Uniformity breeds contempt.


One of the first adages I learned on Wall Street was that nobody is bigger than the market. That theory is being put to the test.

When David Tepper and his animal spirits stirred on Friday, the tape took notice. Tepper and his Appaloosa Management Hedge Fund earned quite a reputation the last few years, including a $7-billion earn-out in 2009. The New York Times reported that Mr. Tepper, with his $4 billion personal cut, was single-handedly the top earner in all of Wall Street last year.

While the Street bought stocks on the news -- presumably under the impression they could ask questions later -- I dialed back to the Spring of 2000. When the tech bubble unwound with furious vengeance and the Fed cut rates in an effort to stem the crimson tide, all you heard, around the Street and throughout the media, was "don't fight the Fed." I didn't subscribe to that notion -- and wrote such at the time -- but it was a painful lesson for many on Main Street to absorb.

Fast-forward to present day; "Don't fight the Fed" has been taken to an entirely new level. It's no longer about rate cuts -- that bullet blasted long ago -- it's about massive "intervention," intricate acronyms, and the full faith and credibility of our government. For those who point to the past -- The Depression, the 70's, Y2K -- I would offer that this time is indeed different. Never before has the world been so interconnected and leveraged. FDR didn't know what a derivative was.

I've said it before and I'll say it again, I want to see an economic recovery as I stand to benefit as much as the next guy. Despite what we hear -- the recession is over, the upside is easy -- let me tell you something you already know: it's not easy and it ain't over. I consider myself an optimistic realist, meaning I hope for the best but will call it like I see it. Before we put the final toe tag on the legacy of this Great Recession, I foresee more pain, perhaps a lot of it.

Society is a sum of the parts and the stock market is supposed to be our thermometer. When the chasm between perception and reality becomes untenable, a seismic readjustment inevitably occurs, as we saw a few short years ago. The current juncture is further complicated by the state of corporate credit -- which bodes well for higher stock prices -- but there are so many fragile elements and assumed conclusions that it's difficult to separate what we're feeling vs. what we're being programmed to believe.

I've written about the two paths so often that I sometimes assume they're ingrained. There are drugs that mask the symptoms and medicine that cures the disease. The drugs -- giving the drunk another drink with hopes he sobers up -- will carry us for only so long before social mood sours to the point of deterioration either domestically, internationally, or both. The medicine -- debt destruction or reorganization -- would be a bitter pill for asset classes but a strong step towards true globalization.

The government bought time, literally, by reflating markets and allowing corporate America to roll out debt and issue stock. Risk wasn't destroyed, it simply changed shape. It migrated from one perception to another, from one balance sheet to the next. I don't know how to be any clearer; we can run but we cannot indefinitely hide. Sometimes I feel like I'm taking crazy pills. The imbalances are cumulative still and the lessons learned from the previous crisis have been squandered.

Could we rally in the intermediate term? Sure, just as nobody is bigger than the market, nobody is smarter than it either... least of all me. I do believe we'll see a sharp reversal lower prior to quarter-end on Friday. That could be the "easy" trade, much like the mainstream depression chatter that triggered the 10% rally since the beginning of September was equally intuitive. From there, we'll take it step by step with the above discussion etched in the back of our brain.

Be careful, remain lucid, and act wisely. Don't bet the ranch or sell yourself short. Be good to others and better to yourself. And stay thirsty my friends, without becoming parched. We have one shot at this wild ride and by the time we get to where we wanna be, the journey will have ended.

Random Thoughts

  • I respect David Tepper -- his track record and the attendant compensation are eye-poppers -- but would caution Minyans that if a trade looks too easy, it probably is.

  • And, does his "easy win-win" factor in the "other side" of the socioeconomic sphere?

  • We mapped a few upside targets ten percent and eighteen sessions ago before being constructive was in vogue. Now that the bulls are smirking in a circle singing Kumbaya, the "easy" trade is behind us -- particularly with quarter-end on tap.

  • Raider smiles are few and far between but I thought we had one locked last night when our all-world kicker, who has made 90% of his field goals from inside 40 yards over the course of his 10-year career, lined up for a 32 yard gimme to win the game. Shank you very much... sigh.

  • S&P 1150 is resistance until proven otherwise but the first fade (lower, last week) was the easy trade. Support and resistance, by definition, get weaker with each subsequent retest.

  • Something seismic this way comes?

  • Are the light volume rallies a technical flag or indicative of apathy (i.e. the new normal)?

  • Until such time we see equally light volume sell-offs, we should assume the former?

  • The weekend press was flush with QE2 sightings. Should investors be careful for what they wish?

  • Has anyone ever seen Richard Branson and the most interesting man in the world in the same room at the same time?

  • Is there anything wrong with a little Hall & Oates on our time?

  • It's just another merger Monday, with Southwest Air (LUV), Walmart (WMT), and Unilever UN) all getting into the act. This remains an on-the-margin positive progression, albeit a small piece of a much larger profit puzzle.

  • We're less that three months away from Festivus 2010 and the doors are officially open. If you would like to sponsor (our current partners include TD Ameritrade, Hill Country Management, Lucid, Entermedia Funds, and E*Trade) or lock your spot (we've sold out each of the last five years), please click here for further information. You won't be disappointed and at the end of the day, a lot of kids will be better for our efforts!

  • Have a great week Minyans; let's do this.


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