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Random Thoughts: Sniffing Out a Script


Is true capitulation on the way?


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 Fighting the Good Fight and Band on the Run.

Gate Sniffage! - 10:03 am

  • Mr. Practical offered on Friday that while he wasn't an advocate of a rescue package, any plan should include dilution of equity at failed institutions and the protection of deposits (savings). Washington Mutual (WM) and Wachovia (WB) are examples of that precise process.

  • I dipped a toe into the FXY (Currency Shares Japanese Yen Trust) for some diversification as we weigh Our Wishbone World. It's a starter position (and not advice) but given the potential that capital preservation shifts to capital conversion, I wanted to establish precedence.

  • Who's gonna bail out Citigroup (C)-Wachovia? Or, by default, has the government included them in the Circle of Must?

  • Lest you've been away from the market for a while, this tape is thinner than Kate Moss on Atkins. I'm talking spooky thin, which won't help the hedge funds liquidating into quarter-end.

  • You know what would go a long way towards re-establishing a semblance of normalcy and credibility? A MEA CULPA from the SEC and others who vehemently voiced the view that short-sellers were to blame for the shame.

  • Following up on Friday's feel that the path of maximum frustration would be "straight down" in the face of the rescue plan, my sense--and it's just that, a sense--is that we're setting ourselves up for true capitulation.

  • Once that arrives, I plan to position myself for the hyperinflation side of the wishbone although I reserve the right to call an audible. Hey, if the government can change the rules in the middle of the game, I can most certainly adapt my stance.

  • I'll be back, Minyans. As always, I hope this finds you well.

Keep on Rockin' in a Free World - 10:54 am

  • When all else fails, we've still got Neil Young.

  • This is your friendly Minyanville reminder (again) that price discovery is a process rather than a point, particularly given the interwoven derivative machination, proposed rescue plan, inevitable hedge fund shutters, thinning liquidity and psychological fragility.

  • In addition to my yen for Yen (sorry), I've dipped a pinkie toe into crude. Please note that I'm not playing the USO but rather the PowerShares DB Oil Fund (DBO).

  • There's no shame in admitting it's hard, there's only shame in ignoring that fact. When the dust settles, there will be far fewer players on the field. The Minyanville mission is to arrive at the place of relative safety en masse.

  • Green beans in the Red Sea? Consumer non-durables such as Johnson & Johnson (JNJ), Procter & Gamble (PG), Pepsi (PEP) and Campbell (CPB) (again, be careful with these--we were keen on them at the beginning of the year (before they sprinted to 52-week highs) but the mere specter of hyperinflation will lead to the perception of margin contraction. And in this market, as you know, perception becomes reality awfully quick.

  • Note the VXO (44, +14%) which is creepin' while ya peepin' (How's the peepin' Tom?).

  • I can't shake "VXO 70" from my crowded keppe but that's admittedly nonsensical.


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Position in FXY, DBO
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