Climbing the Wall of Depression-Minyanville

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Climbing the Wall of Depression

Todd Harrison Mar 18, 2008 9:30 am


		Opportunities along the long, hard road.

We’ve long said we’re witnessing the most interesting juncture in the history of the financial markets. With each passing day, this prophecy continues to self-fulfill.

Sunday night, when the proverbial schvitz was hitting the fan, I scribed an unfamiliar vibe. It was a constructive column on the financials, the first such piece I’ve written in years. I’ve been a furry bear for a long time - quite early, I know, and perhaps I’ll suffer the same fate again. But the pieces of the puzzle fell into place and I had to let it fly.

To be clear, I’m not trying to call THE bottom or take a victory lap. I believe we’re in for a long, tough and dare I say depressing road that will take many years to unwind the cumulative imbalances that have built as a function of financial engineering. Just as there were years when the market rallied during the great depression, we’ll likely sing the same song as we stride down this seemingly sullen stretch.

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We can debate the merits of the socialization of markets until we’re blue in the face. I’ve weighed in on this repeatedly and continue to believe there is a drastic difference between taking our medicine and being injected with drugs that dull the pain. The doctor bills that are being formed in the process will burden our children for generations to come.

Hank Paulson yesterday pointed to Bear Stearns (BSC) as “the other side” of moral hazard and perhaps he’s right. What he failed to say is that political and government policy created this conundrum in the first place. If Alan Greenspan allowed us to enter recession following the bursting of the tech bubble, we would be that much further along the road of legitimate recovery.

Be that as it may, our ultimate destination isn’t as important as the path that we take to get there. The battle between hyperinflation and deflation continues to rage with the former storm gaining steam as a function of socialist intervention. That will end when foreign holders of dollar denominated assets finally balk. If they could do this without pulling themselves into the abyss, they would likely have already walked.

With this morning’s earnings reports from Goldman Sachs (GS) and Lehman Brothers (LEH), the Bear Scare has been given a reprieve, at least for the time being. As discussed yesterday on the Buzz & Banter, I traded from the long side and carried risk home overnight. I will make sales into strength, trail stops on my positions and practice discipline over conviction as I shuffle around a long thesis. I don’t believe that was THE low but it may well have been “A” low in the context of a trade.

Real risk remains but therein lies the keys to reward.

Good luck today.

R.P.


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Comments (5)

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Doug Champion

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03-18-2008, 9:46 am
Great Perspective Todd, thanks.One question: When will foreign holders of dollar denominated assets ever be able to walk without pulling themselves into the abyss? Like the man I met the other day driving the big gas guzzle Read More

David Gondek

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03-18-2008, 12:14 pm
The real question is what happens when the market is divorced from any reality. If securities are no longer listed at market value, if the dollar is allowed to drift perpetually lower, if the government takes on limitless debt... Read More

Johnny Rotten

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03-18-2008, 12:49 pm
there's always a lot of talk about mortgaging the future. Isn't the reality that if the debt burden for future generations is too overwhelming, they'll just reject it? i.e. default on obligations, and start fresh. Read More

Back Lash

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03-18-2008, 1:40 pm
@ some point interest will turn to true fear where i live, there are no bullion dealers, so i am accumulating metal coins. i was buying them from the banks for awhile, til they noticed, and then they refused to sell me any more. so now i Read More

Rick Spung

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03-18-2008, 2:41 pm
It seems to me we are forming a bearish wedge w/lower highs on both short and intermediate charts of IWM. Read More


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Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

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