An obvious concern is the potential for continued redemptions and forced selling. Many macro portfolios are laced with derivatives and won’t be bailed out by the government umbrella, introducing the specter of further systemic risk.

On the mutual fund side of the Street, however, there is an embedded belief that the only thing worse than losing money is under-performance. If the market catches a sustained bid, performance anxiety will percolate as players chase performance in an attempt to keep up with the Dow Joneses.

The Path of Maximum Frustration

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Last week, when we offered a more constructive stance on a trading basis, the pushback was palpable. In fact, the variant views were consistent with feedback received after previous against-the-grain stances such as shorting crude in May and shifting to 100% cash at the beginning of summer.

Nobody is smarter than the market and I’ve long ago learned that if you don’t stay humble, the market will do it for you. What I’ll say with confidence is that the tape tends to follow the path of maximum frustration and rarely rewards herds running aimlessly towards a cliff.

While the process of price discovery is fluid—dependent on a multitude of variables including credit, the dollar and geopolitical strife—it’s my opinion that we’ll look back at last week as the 2008 trading low (not to be confused with a market bottom) before a harsher downside comeuppance arrives next year.

Nobody is Bigger than the Market

Following the attacks of September 11th, the lines of distinction between patriotism and bullishness ceased to exist. Alan Greenspan juggled bubbles, Wall Street financially engineered the markets and the mere mention of recession was considered anathema.

It’s not wise to mess with Mother Nature and that introduces profound risk for future generations. Just as the grand experiment at the turn of the century created cumulative imbalances under the seemingly calm surface, history won’t be kind when it judges our current course of action.

There are two natural paths for financial markets—time and price—and an unenviable destination, that of debt destruction. The sooner we’re allowed to take our medicine rather than being given drugs to mask the disease, the quicker we’ll arrive at a stable foundation for legitimate economic expansion.

This Too Shall Pass

There is no denying we live in difficult times. Social mood is shifting, risk appetites are abating and societal acrimony is percolating stateside and abroad. The easiest thing to do is run and hide but alas, that’s not a viable option.

Minyanville earned a bearish reputation the last few years when we highlighted systemic risks in the system. As imbalances cumulatively built in magnitude and consequence, we championed capital preservation, debt reduction and financial intelligence as the hallmarks of any successful investment approach.

We will cycle through this period and arrive at better days and easier trades, although it will take some time. Just as the Internet prophecy proved true—albeit not before the tech crash—so too will the golden age of globalization once debt destruction fully manifests.

The recovery will be led by China, India and other emerging markets and profoundly reward those proactively positioned. Our goal—as investors and as a human race—is to get there in one piece while being kind to each other during the journey.

Fare ye well.

R.P.