The Wood Shed

By Todd Harrison  JUN 27, 2007 10:02 AM

...a falling tree--or price, as the case may be--isn't firewood unless someone is there to chop it up and collect it.


"And a new day will dawn for those who stand long and the forests will echo with laughter."
Led Zeppelin

Hey Toddo,

Thanks again for a wonderful site.  Just thinking out loud here. Leverage in a true market is one thing. But the subprime "space" is not a market. You have to be a member of the club to play at the club. Only until someone like Merrill (MER) comes around and shines light on it does it become a market.

I can't short this. Can you? If there is no market, the fundamental premise of investment is not valid. In fact, one could say that the bet that these participants are making is: it never becomes a market. The investment is premised on the club staying private.

Once the doors are open, the underlying investment thesis (regardless of the instrument) goes out the door. It's not just leverage – it's access.   Or, at least that's how I'm viewing it.

Kind regards,
Minyan Andreas


You hit the nail on the head in that a falling tree--or price, as the case may be--isn't firewood unless someone is there to chop it up and collect it.  And even so, it won't lead to a forest fire until someone lights the match.

The tricky aspect of this juncture is that everyone knows where the wood is now.  And the wood dealers, who were quick to realize gains when the underlying assets were appreciating, are hoping that the spark in the dark (that is mark-to-market) doesn't come to Bear (pun intended).

I'm not smart enough to say whether this is the beginning of a big blaze.  What I will say is that we've been discussing these conditional elements for a mighty long time.

In a finance based economy, one woven together by hundreds of trillions of dollars of derivatives, you don't need to be an investor in CDO's to get burnt.  You simply need to be in a neighboring town.

And that could be a problem in our current era of globalization.

Random Thoughts…


No positions in stocks mentioned.

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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.