Monday Morning Quarterback: The Learning Curve

By Todd Harrison  SEP 14, 2009 9:05 AM

There's always a bull case and a bear case.


“Education consists mainly of what we have unlearned.”
- Mark Twain

It’s long been our contention that the friction between opinions is where true education lies. That was the genesis of Hoofy and Boo; there’s always a bull case and bear case and the residual grist is what you read about in tomorrow’s newspaper.

The other day, Snoop Tony Dwyer offered a thought-provoking take on de-leveraging and the attendant implications for the equity markets. Minyan Peter respectfully offered the "other side,” one that hit home for a number of reasons.

We want to hear both views from these gentlemen; when it comes to the nuts and guts financial stuff, they’re amongst the best in breed.

Snoop contacted me Friday with some follow-up vibes. Being John Malkovich, I’m compelled to share his fare with ye faithful. And I quote:

"There is no debate. We de-lever each recession and then, when comfy again, want more 'stuff.' Our society--and human nature--is based on the fear of losing what we have followed very quickly by the not getting what we want.

'They are all right--the bears are all right— this will end badly and there is too much debt. The problem for them is that we are on the bullish side of the bubble building process again. This is 2003 on steroids."

Where do I net out? I respect Tony's take -- which aligns with what the credit markets are telling us -- but continue to believe we've taken drugs to mask the symptoms rather than medicine to cure the disease. That doesn't mean stocks can't continue to rally, it simply means the socioeconomic malaise will manifest one-way or another.

Further, for hyperinflation to percolate -- a 25% probability through my lens -- we need to see legitimate end-demand. I’m not referring to government spending (which accounted for almost 80% of GDP during The Great Depression), I’m talking consumer need, the means to spend and, perhaps most importantly, the desire to do so. Social mood and risk appetites shape financial markets.

While sitting on a panel in Ojai in 2005, Tony, John Succo and I had a spirited discussion regarding the percolating imbalances in the marketplace. In what would become one of the classic quotes in Minyanville history, Tony said, "The sun is going to blow up one day but that doesn't mean it's a smart thing to bet on."

He was right—the markets continued higher for a spell—and we were right, the sun did, in fact, blow up. Now that we’ve seen a history relief rally, the question we must address is one of magnitude (of the move higher) and timing (before the next wave of this crisis arrives).

I'm not smart enough to answer those questions but I'm seasoned enough to see both sides and manage risk—rather than chase reward—as we together find our way.

I will simply say this, friends, after nearly 20 years of trading and ten years of writing, the world has become more curious by the day.

Speaking of both sides...

We don't "do" acrimony in the 'Ville and I pride myself on taking the high road. This, you know.

But as I listened to my former partner take victory laps on CNBC for his Bernanke rant—which while right, was hardly alone—I am compelled to remind ye faithful that there are two sides to every trade.

I don't claim to have the answers and that's sorta the point—there are no pundits—and this is your friendly Minyanville reminder to think for yourself; you're the one who will reap the rewards or suffer the consequences.

Our goal in the 'Ville is to provoke thought and effect positive change through financial understanding. We understand it's impossible to offer advice to a faceless audience as people have unique needs and distinct time horizons.

Financial literacy isn't a sound bite or a lightening round; it's a lifelong journey. Just because somebody shouts doesn't make his or her message more important.

When headlines like “Greatest Bull Market in History” and “Why it’s Different This Time” litter the landscape, it’s time to reflect on lessons learned. Again, that may prove true but I’ve seen this movie before and would be remiss if I didn’t share my review.

No salt intended and if you're a Minyan, you probably already know this. If communicating my first-hand experience helps one person question the conventional wisdom that if it’s on TV it must right, it is well worth the time this took to write.

Random Thoughts


Position in NDX