The Denial Trial

By Todd Harrison  FEB 28, 2007 8:56 AM

We must maintain perspective and lucidity, now more than ever, with regard to where we are and how we got here.


It's like rain on your wedding day
It's a free ride when you've already paid
And isn’t it ironic…don’t you think?

(Alanis Morisette)

Do you know what trading and comedy have in common?  The most important element for both is...timing.

I couldn’t help but smile as I sat on a plane last night watching television coverage of Terrible Tuesday.  The elements of downside disconnect have long been on my radar.  We discuss them often on Minyanville.  I’ve been long gamma—and I’ve buried alotta puts—patiently waiting for volatility to decompress.

Yet here I am, away from my turret and the quick trigger it affords me.

You might think I’m bitter, but I’m not.  I’m actually greatful for the opportunity to deliver the keynote at TD-Ameritrade’s west coast soiree and psyched to spread the Minyan vibe.  All we have is our name and our word and I’ve given both in terms of my time commitment.  It could be worse and, for alotta traders this morning, it already is.

As I watched the coverage of yesterday’s carnage, I was struck by a few threads.  First, there seemed to be widespread rationalization as fingers pointed to system glitches, covert hedge funds and hidden agendas.  Folks, let’s be clear—the market sell-off has been a long time coming.  The conditional elements have been in place.  The fact that it hadn’t happened only served to solidify the false sense of security that remains very much in place.

Indeed, if all market moves are characterized by three phases—denial, migration and panic—a case can be made that we’ve got some heavy lifting ahead.

The bovine will opine that the sharpest corrections occur in the context of a bull market.  And they’re right.  But we must ask ourselves if a one day wonder is indeed cleansing.  We must ascertain if a quick wash is an elixir on the heels of historic debt accumulation, poor risk management and cumulative structural imbalances.  We must maintain perspective and lucidity, now more than ever, with regard to where we are and how we got here. 

I don’t know the answers but I know enough to ask these questions and offer some thoughts:

Good luck.


Position in gss, sunw, financials, commodity stocks