Todd H: "Is the Worst of the 2008 Spook Behind us?
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Todd H: "Is the Worst of the 2008 Spook Behind us?
"Monday Morning Quarterback: Is the Worst of the 2008 Spook Behind Us?"
Todd Harrison
Nov 03, 2008 9:45 am
" Despite an 11% rally, October was a brutal month for investors.
While at our Minyanville offsite management meld last week, I made a conscious effort to return home on Friday. Halloween has always been one of my favorite holidays and revelry is rare in our Age of Austerity.
I put black and blue make-up on my face and dripped fake blood from my nose, ear and cheeks. I took an old, tattered suit, shirt and tie and ripped them to shreds before putting them on. Disheveled and dirty, my costume wasn’t incredibly creative but it was relatively straightforward—I was the U.S. economy.
My friends and I took the subway downtown in an attempt to circumvent the insane traffic that congested Manhattan. The train was packed with people from all walks of life, from high-end partiers to those heading home from (or to) work.
As the subway lurched forward, someone asked about my costume. “I’m the economy,” I offered, “it’s been a tough year.” They smiled and told the person next to them who, in turn, passed the information along. In a few short minutes, the entire car was laughing as we approached into the next station.
It was nice to see the shift in social mood, if only for a day.
“Recession stop, Recession!” I yelled, taking the opportunity to work the crowd. “Next stop, Depression. All aboard for the Depression!”
A woman got up and offered me her seat. “We need you to rest up and rebound,” she said with just a trace of humor.
“How long will you be in this condition?” asked a middle aged, well-dressed man with glasses.
An older gentleman (laid off from his job last week) pat me on the back and said “My brother, get well soon—we all need you!”
The collective reaction resonated for a few reasons. First, the socioeconomic malaise has spread throughout the societal spectrum as everyone on that train could identify with the economic condition.
Second, hope springs eternal that this too shall pass although my haunting sense is that by the time we arrive at the end of this cycle, my costume won’t seem at all funny.
Finally, despite the sorry state of the union, the soul and spirit was nothing short of impressive. We’ve been through worse and it wouldn’t be wise to underestimate the resolve of the citizens of New York City .
While one could argue that we’re a ways away from the final phase of the big picture denial, migration and panic, I was happy to see a semblance of normalcy return to the big city.
The fact that it occurred with everyone in pretend mode was almost beside the point.
Ghost Busters!
Despite an 11% rally last week, October was a brutal month for investors. The Dow Jones Industrial Average lost 14%, the S&P fell 17% and the NASDAQ slid 18%. In all, some $9.5 trillion in market capitalization evaporated since The September to Remember.
Commodities, for their part, were hit harder. Crude lost 33%, copper fell 40% and gold—the supposed safe haven in an unsure world—slid 18%, $300/oz below its 2008 peak. There’s an old adage on Wall Street that in true bear markets, there is nowhere to run and nowhere to hide.
At the beginning of the year, Minyanville offered that deflation was our number one theme for 2008. Since that was scribed, numerous economists and policy makers have offered reactive rationalization for what we’ve seen. This past Saturday, The New York Times ran a front-page article on the risks of deflation and what it means for mainstream investors. The Financial Times followed this morning with “The D-Word: Could deflation be the next big shock to the financial system?”
To be sure, those are fine publications. The former is the unofficial paper of record while the later offers a stellar, unbiased view of world business. My point isn’t to disparage either offering, it’s simply to draw attention to the fact that by the time you’re reading about it, the market already baked it into the cake.
The time to spy deflation was before the greatest financial crisis in history crushed the market. Indeed, as Wayne Gretzky once said, “Don’t skate to where the puck is going, skate to where the puck is going to be.”
We’ve long offered that the government prefers inflation to deflation and would attempt to affect that outcome by all means necessary. The asterisk on that effort is the patience (or lack thereof) of foreign holders of dollar denominated assets, where investments have suffered as the greenback lost 40% of its value from the 2002-2008 peak to trough.
That’s the wildcard in the discussion and none of them are in the hands of U.S. policy makers. If this dynamic “jumps the shark,” so to speak, the savers of this country could be in for a rude awakening. In that scenario, capital preservation would mean proactive capital conversion to alternative currencies.
Global angst is percolating with each passing day as the collapse of the dot.gov bubble manifests. Minyan Peter continued his tremendous analysis last week when he drew the parallels between Bear Stearns and Iceland, Countrywide and Hungary and Lehman Brothers and Ukraine.
I’ve been asked numerous times how long this "prolonged period of socioeconomic malaise” will last. My standard response has been “at least five years” although that destination is an approximation dependent on a multitude of yet unknown factors. The more pertinent question, at least in terms of our collective fortunes, is the path we take to get there.
The Wishbone World remains in play, with hyperinflation on one side and deflation on the other. The former dynamic is tough to imagine given current conditions, much as the notion of deflation was a foreign concept at the beginning of this year. However, given the global imbalances, a seismic readjustment may be looming that will shock currencies, equities, fixed income and commodities back towards a state of equilibrium.
The revaluation of the Chinese Yuan or the denomination of crude is something other than dollars have, in my opinion, a much higher probability than conventional wisdom is currently assigning.
In just five weeks, the Federal Reserve has doubled the debt on its balance sheet to $2 trillion dollars. For every action there is an equal and opposite reaction—or, given the underlying derivative machination, an outsized reaction that gathers momentum like a pebble in a pond that building to a tidal wave.
The coordinated global central bank response will matter on the margin but it continues to mask the disease with drugs rather than provide medicine for the cure. That will take two things—time and price—and while we’ll see a two-sided tape, it’s incumbent on us all to maintain perspective as we find our way.
There is risk to every reward, sinners for each winner and a trick to most treats. Enjoy the sugar rush but remember that slow and steady wins the race.
Random Thoughts
It’s Election Tuesday tomorrow so get out and vote! Conventional wisdom is that “one less uncertainty” will be a good thing for the markets but I’m not entirely sure that wasn’t the reason for the rally last week.
The Minyanville Festivus is one month away and I know a lot of people who are coming but haven’t yet locked their spot. If you wanna gaggle with the entire MV community while chowing down, cutting rug and bellying up, take a deuce and slap it on the tape. You won’t be disappointed!
I had the good fortune of dining with the savvy soothsayer Jeff Saut and his lovely bride Cheryl last night and they’ll be there with bells on. That’s the beauty of our community—love and laughter trump societal acrimony every day and twice on Sunday.
Remember a few weeks ago when the Minyanville community overwhelmed the voting booth on the Silicon Alley 100 and we shot to the top spot? The “official” results were released last week and we hit the list at #24. That’s good news—it gives us 23 reasons to build our brand!
Into the heat of the downside meat, I humbly offered that October 10th might have been the low-tick this year.
The following week, as the tape was being tested, I offered the other side of the ride and the risk of a bear trap.
You always wanna see both sides as the friction between opinions is where true education lies.
Nestled in the first column was the notion of “fund vs. funds,” or hedge fund purging vs. mutual fund performance anxiety. The longer we hold and the farther we trade above S&P 840, the more pressure there will be on money managers to chase the tape for fear of under-performance.
Cisco (CSCO), Transocean (RIG), Disney (DIS) and Qualcomm (QCOM) highlight this week’s earning’s parade.
With regard to my positions, I left a few on my sheets while I was away from the fray. There were a dose of DXO (crude double upside power-shares), a snivlet of Dryships (DRYS) and a Todd-lot of gold. All trades and trades are made to be taken.
R.P."
(in www.minyanville.com)
Todd Harrison
Nov 03, 2008 9:45 am
" Despite an 11% rally, October was a brutal month for investors.
While at our Minyanville offsite management meld last week, I made a conscious effort to return home on Friday. Halloween has always been one of my favorite holidays and revelry is rare in our Age of Austerity.
I put black and blue make-up on my face and dripped fake blood from my nose, ear and cheeks. I took an old, tattered suit, shirt and tie and ripped them to shreds before putting them on. Disheveled and dirty, my costume wasn’t incredibly creative but it was relatively straightforward—I was the U.S. economy.
My friends and I took the subway downtown in an attempt to circumvent the insane traffic that congested Manhattan. The train was packed with people from all walks of life, from high-end partiers to those heading home from (or to) work.
As the subway lurched forward, someone asked about my costume. “I’m the economy,” I offered, “it’s been a tough year.” They smiled and told the person next to them who, in turn, passed the information along. In a few short minutes, the entire car was laughing as we approached into the next station.
It was nice to see the shift in social mood, if only for a day.
“Recession stop, Recession!” I yelled, taking the opportunity to work the crowd. “Next stop, Depression. All aboard for the Depression!”
A woman got up and offered me her seat. “We need you to rest up and rebound,” she said with just a trace of humor.
“How long will you be in this condition?” asked a middle aged, well-dressed man with glasses.
An older gentleman (laid off from his job last week) pat me on the back and said “My brother, get well soon—we all need you!”
The collective reaction resonated for a few reasons. First, the socioeconomic malaise has spread throughout the societal spectrum as everyone on that train could identify with the economic condition.
Second, hope springs eternal that this too shall pass although my haunting sense is that by the time we arrive at the end of this cycle, my costume won’t seem at all funny.
Finally, despite the sorry state of the union, the soul and spirit was nothing short of impressive. We’ve been through worse and it wouldn’t be wise to underestimate the resolve of the citizens of New York City .
While one could argue that we’re a ways away from the final phase of the big picture denial, migration and panic, I was happy to see a semblance of normalcy return to the big city.
The fact that it occurred with everyone in pretend mode was almost beside the point.
Ghost Busters!
Despite an 11% rally last week, October was a brutal month for investors. The Dow Jones Industrial Average lost 14%, the S&P fell 17% and the NASDAQ slid 18%. In all, some $9.5 trillion in market capitalization evaporated since The September to Remember.
Commodities, for their part, were hit harder. Crude lost 33%, copper fell 40% and gold—the supposed safe haven in an unsure world—slid 18%, $300/oz below its 2008 peak. There’s an old adage on Wall Street that in true bear markets, there is nowhere to run and nowhere to hide.
At the beginning of the year, Minyanville offered that deflation was our number one theme for 2008. Since that was scribed, numerous economists and policy makers have offered reactive rationalization for what we’ve seen. This past Saturday, The New York Times ran a front-page article on the risks of deflation and what it means for mainstream investors. The Financial Times followed this morning with “The D-Word: Could deflation be the next big shock to the financial system?”
To be sure, those are fine publications. The former is the unofficial paper of record while the later offers a stellar, unbiased view of world business. My point isn’t to disparage either offering, it’s simply to draw attention to the fact that by the time you’re reading about it, the market already baked it into the cake.
The time to spy deflation was before the greatest financial crisis in history crushed the market. Indeed, as Wayne Gretzky once said, “Don’t skate to where the puck is going, skate to where the puck is going to be.”
We’ve long offered that the government prefers inflation to deflation and would attempt to affect that outcome by all means necessary. The asterisk on that effort is the patience (or lack thereof) of foreign holders of dollar denominated assets, where investments have suffered as the greenback lost 40% of its value from the 2002-2008 peak to trough.
That’s the wildcard in the discussion and none of them are in the hands of U.S. policy makers. If this dynamic “jumps the shark,” so to speak, the savers of this country could be in for a rude awakening. In that scenario, capital preservation would mean proactive capital conversion to alternative currencies.
Global angst is percolating with each passing day as the collapse of the dot.gov bubble manifests. Minyan Peter continued his tremendous analysis last week when he drew the parallels between Bear Stearns and Iceland, Countrywide and Hungary and Lehman Brothers and Ukraine.
I’ve been asked numerous times how long this "prolonged period of socioeconomic malaise” will last. My standard response has been “at least five years” although that destination is an approximation dependent on a multitude of yet unknown factors. The more pertinent question, at least in terms of our collective fortunes, is the path we take to get there.
The Wishbone World remains in play, with hyperinflation on one side and deflation on the other. The former dynamic is tough to imagine given current conditions, much as the notion of deflation was a foreign concept at the beginning of this year. However, given the global imbalances, a seismic readjustment may be looming that will shock currencies, equities, fixed income and commodities back towards a state of equilibrium.
The revaluation of the Chinese Yuan or the denomination of crude is something other than dollars have, in my opinion, a much higher probability than conventional wisdom is currently assigning.
In just five weeks, the Federal Reserve has doubled the debt on its balance sheet to $2 trillion dollars. For every action there is an equal and opposite reaction—or, given the underlying derivative machination, an outsized reaction that gathers momentum like a pebble in a pond that building to a tidal wave.
The coordinated global central bank response will matter on the margin but it continues to mask the disease with drugs rather than provide medicine for the cure. That will take two things—time and price—and while we’ll see a two-sided tape, it’s incumbent on us all to maintain perspective as we find our way.
There is risk to every reward, sinners for each winner and a trick to most treats. Enjoy the sugar rush but remember that slow and steady wins the race.
Random Thoughts
It’s Election Tuesday tomorrow so get out and vote! Conventional wisdom is that “one less uncertainty” will be a good thing for the markets but I’m not entirely sure that wasn’t the reason for the rally last week.
The Minyanville Festivus is one month away and I know a lot of people who are coming but haven’t yet locked their spot. If you wanna gaggle with the entire MV community while chowing down, cutting rug and bellying up, take a deuce and slap it on the tape. You won’t be disappointed!
I had the good fortune of dining with the savvy soothsayer Jeff Saut and his lovely bride Cheryl last night and they’ll be there with bells on. That’s the beauty of our community—love and laughter trump societal acrimony every day and twice on Sunday.
Remember a few weeks ago when the Minyanville community overwhelmed the voting booth on the Silicon Alley 100 and we shot to the top spot? The “official” results were released last week and we hit the list at #24. That’s good news—it gives us 23 reasons to build our brand!
Into the heat of the downside meat, I humbly offered that October 10th might have been the low-tick this year.
The following week, as the tape was being tested, I offered the other side of the ride and the risk of a bear trap.
You always wanna see both sides as the friction between opinions is where true education lies.
Nestled in the first column was the notion of “fund vs. funds,” or hedge fund purging vs. mutual fund performance anxiety. The longer we hold and the farther we trade above S&P 840, the more pressure there will be on money managers to chase the tape for fear of under-performance.
Cisco (CSCO), Transocean (RIG), Disney (DIS) and Qualcomm (QCOM) highlight this week’s earning’s parade.
With regard to my positions, I left a few on my sheets while I was away from the fray. There were a dose of DXO (crude double upside power-shares), a snivlet of Dryships (DRYS) and a Todd-lot of gold. All trades and trades are made to be taken.
R.P."
(in www.minyanville.com)
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