Broken Record (and we don't mean the market)! 1-11-07

Good Evening.

Another day…another rally, another day…another Cliff in the market that quickly gets bought. When the SAP news hit the wires of a shortfall, the market quickly Cliffed to the downside. The Bulls, laughing with bravado, wasted no time in using their margin buying power to take advantage of the sharp decline. This game has become all too easy for the Bovines.

Essentially, there are virtually no Bears left in the woods, just road kill. The market is at multi-year highs, with very few participants holding substantial short exposure. Ominously the earnings will start coming in fast and furious over the next two weeks which could be the catalyst that may resurrect the Bears. However, those arrogant Bulls are completely confident that the earnings and guidance will be far superior then expected, inflation is dead, energy is permanently in the tank and "the surf's up" in January! Oh, and Ms. Universe has realized her dream of World Peace! Do these things make you laugh? They sure tickle us, knowing the Bulls have truly priced in all of the above!

The problem for the Bears of course is that markets always move to extremes of irrationality. Clearly we are in one of those extreme moments. Unfortunately, measuring end points within an extreme is the most difficult of all tasks. Too many emotions and "non-market" decisions are influencing the major indexes.

If You Held a Taser to Our Head:
What is a market participant to do? The answer is to pick your poison! You can hold your nose and participate in this game of Russian Roulette and hope you continue to get lucky…punk! On the other hand you can exercise extreme patience by keeping a well balanced portfolio of longs and shorts as well as a healthy hoard of cash! The former offers immediate gratification but causes an ulcer, knowing that the day of reckoning will show up unannounced. The latter also rips a hole in your gut while your portfolio continues to underperform the major averages! For Money Managers, the latter is exponentially more painful. However, for individuals history has shown that the game of Russian Roulette (the former) ends badly and is irreversible. In other words, protect your capital and wait for another opportunity that will surely come.

"Bear" with us!

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