|A Thirst for the Truth|
By Todd Harrison MAR 11, 2009 7:39 AM
Trusted news sources are not as reliable as once thought.
People are so thirsty that in the absence of water they’ll drink the sand.
They don’t drink the sand because they’re thirsty—they drink the sand because they don’t know the difference.
As we edge through these trying times, once trusted information sources are being challenged. This has spread throughout the societal spectrum—from financial advisers to mainstream media to politicians—with accountability being demanded as a function of frustration.
We’ve long offered that the leaders who emerge from a crisis aren’t the same as those who enter it. While that was an interesting debate for some time, a snapshot of our current conundrum has brought it to bear.
Citigroup (C) traded as a penny stock last week and General Motors (GM) was fitted for a toe tag. Heck, even Warren Buffett’s Berkshire Hathaway (BRK-A) and General Electric (GE), once considered untouchable, were caught in the credit crosshairs.
I recently offered that March Madness was upon us with a 20% move likely in the near future. The feedback from many on the message boards was that without taking a definitive directional stance, there was little, if any, value in sharing those thoughts.
My response is that the market is a movie, not a snapshot, with a multitude of ever-changing variables continually rewriting the script. To appreciate where we’re going, we must see—and respect—both sides of the ride rather than relying on any one opinion that tells us what to do.
Indeed, that very mindset is what got so many people into trouble in the first place.
The binary dynamic continues with tomorrow’s House Financial Services Committee meeting on Mark-to-Market accounting next up as a potential catalyst. While Ben Bernanke voiced disapproval of outright suspension yesterday, it remains on our trading radar.
Should they relax the rules, we’ll see a reflex rally that skins the bears. If they leave current policy in place, the risk of a systemic meltdown rises in kind.
I’m a free market advocate who believes time and price are the only true arbiters of our financial fate. Still, with that said, a shift in Mark-to-Market or Credit Default Swaps may indeed be needed to stabilize the patient before he flat-lines.
Where You Stand is a Function of Where You Sit
I operate with two buckets of capital—a short-term active trading account and my long-term nest egg, which has been 100% cash for some time.
While most folks don’t employ the same stylistic approach, I can only share what I’m doing, why I’m doing it and when—along with how—it’s being done. It would be disingenuous to offer outright advice given I don’t know the time horizon and risk profile of a faceless audience.
With that said, I offer these thoughts—sometimes right, sometimes wrong but always honest—with hopes that sharing my process adds value to yours.
In my active account, I’ve been trading from the long side with an eye towards Martin Brodeur (a kick-save by the government). While I use trailing stops to manage intraday risk, that won’t protect my portfolio overnight. As such, I’m keeping a very tight risk leash lest we see white flags and black swans.
Through a longer-term lens, S&P 600 is where I plan to put 25% of my cash to work. I’ve been weighing potential vehicles including SSO or SPY (I’m leaning towards the latter as I don’t trust leveraged ETF’s for anything more than a trade), gold (preferably after the devil of deflation has its way) and the Japanese Yen (FXY).
The great unknown—and why it’s so difficult to map any plan with certainty—is that the field is literally shifting underfoot, akin to playing football during an earthquake.
The U.S. dollar remains a key variable and I’ll look to push more chips on the table when it flips the downside switch. While the dollar and assets classes can both trade lower, a weaker greenback is a necessary precursor to higher asset classes for as long as it is the world reserve currency.
This is indeed a new world order, one that will forever change the perception of financial markets. It is my sincere hope that, as we navigate these twisty turns, we will pave the way to old school values where your name and word mean something and honesty, trust and respect are the foundational construct of future endeavors.