“Once I rose above the noise and confusion, just to get a glimpse behind this illusion. I was soaring ever higher, but I flew too high.”
At 3:30 PM yesterday on the Buzz & Banter, in response to a question by an Old School Minyan on whether I would dust off my seemingly forgotten bear costume, I responded:
"I don't 'do' the costumes anymore as I've been trading less and building more. One thing I learned long ago is that if you're not 100% focused on risk, you're at a natural disadvantage to your counter-party.
"Trading and writing is one thing--it'll be ten years of scribin' vibe this July--but that, coupled with multiple melds, business travels and building the 'Ville (in this environment, no less) makes for some tough risk management.
"With that said, and for the oldest of the old school Minyans in our midst, I'll toss on the metaphorical bear suit (at dual resistance of S&P 1200 and Goldman Sachs (GS) $150, for a trade); two arms in (50% conviction) with a stop above S&P 1220 (recent highs).
"At the very least, I'm vibing S&P 1150 (first stop); 20 handles of risk vs. 50 handles reward is a decent vig, particularly into Turnaround Tuesday. Sometimes right, sometimes wrong, always honest—and never advice (I don't know your time horizon or risk profile)."
It's been a while since I've fiddled with metaphorical imagery. Some of you might remember back at the turn of the century, while running a $400 million fund and trying my hand at this writing thing, I had a tailor on premise, switching in and out of the bull and bear costumes as a function of time and price.
It was a creative way to share my relative conviction in real-time and folks vibed with that seemingly nonsensical silliness during a very tense time in the world. Unbeknownst to any of us, that was the genesis of what would eventually evolve into our Emmy Award winning Hoofy and Boo. They've come a long way and I suppose we all have, following a Decade of Decadence chock full of historical events.
At the beginning of this year, in my Ten Themes for 2010, I offered:
"Conventional wisdom dictates that equities will enjoy further upside before facing headwinds later this year, akin almost to the mirror image of 2009. Respect -- but don’t defer to -- these choppy waves of optimism. When caught in a riptide, the surest path to survival is to swim parallel to the shore until the dangerous current passes."
While the script hasn't played out precisely as planned--the S&P lost 225 handles to start 2009 and thus far rallied 175 handles off the February low—the potential exists for the mirror image to reassert itself. Flies remain in the ursine ointment—most notably the corporate bond market, which suggests further strength still— which is precisely why I view the big picture as a series of little pictures and attempt to stair-step my risk profile with defined risk.
It's not easy, Minyans, and there's no shame in admitting it’s hard. There's only shame in pretending it's not. Keep your eyes open, your right hand up and your thoughts positive. As goofy as it sounds and as silly as it seems, thinking positive really does make a meaningful difference in our daily routine.
- AOL (AOL) is getting close to the $20 price target deemed "interesting" by Minyan Mason Slaine when we touched base after earnings. He’s had a heckuva hot hand the last few years so I wanted to toss it on your radar.
- The next time I’m out celebrating, I’m gonna do a shot of Jack Bauer. That’s two shots, so you know; one is for good measure.
- Last autumn on the ‘Ville, and during my interview with Steve Forbes, I offered that I was bullish on the greenback (it was an extremely contrarian view at the time) and noted the potential implications for the carry trade (long risk assets funded by cheap dollars), which the hedge fund community had on in size. Let’s not forget that dynamic as the dollar continues to break out; a high correlation of strategies tend to follow the path of maximum frustration.
- That's a different conversation than, "Geez, why would the Euro continue to slide now that Greece is "contained?" The answer to that question, as Minyans know by now, is playing out in front of our eyes.
- Please note the overnight action in sovereign spreads; Spain is 18% wider, Ireland is 14% wider, Portugal is 13% higher, Italy is 11% higher and Greece is 6% higher. On an absolute basis, the "range" of perceived default is anywhere from 12% (Italy) to 42% (Greece) but for purposes of the "journey," the rate of change and the direction of that change help quantify the perception that defines the European reality.
- If the Europeans start their own rating agencies, what would be the implications for Moody's (MCO) and by extension, Berkshire Hathaway (BRK.A)?
- When push comes to shove, are you afraid of love?
- Professor Peter Atwater scribed some prescient vibe in January entitled, 2010:The Robin Hood Economy, and offered, “As we enter the New Year, I’d recommend that Minyans review their investment holdings with the growing wave of populism in mind. I anticipate that in the year ahead, the old phrase 'To those to whom much has been given much is expected' will take on new meaning." Who would have thought that five months later, financial services, health care and energy would all be considered “evil.”
- The Crash Index! In mid-January, "Crash" the cat was adopted and the S&P dropped 5% in three short days. This morning, "Crash" went to the vet for his 'snip & clip' and the market is responding in kind. Coincidence? I think not...
- What does a recap of a recap of the Milken Conference look like?
- MVHQ is moving offices this Friday to new some new downtown digs. Do you have any idea how many memories are stuffed into desk drawers after six years in the same building?
- Yesterday on the Buzz & Banter, we asked the question, “The VXO 17% lower today—is this an opportunity to get back on the volatility train?” That same fear proxy is 20% higher today. Just sayin’.
- Do the Gods seem angry, as evidenced by all the natural disasters of late?
- As if unfunded pensions weren't reason enough to worry...
- It’s easy to be angry and entirely more difficult to operate in a manner consistent with who you believe you are and the legacy you would like to leave. I write this for myself as much as I do you; there are plenty of reasons to be pissed and lots of injustice in this world. If we stay true to the “long empathy, short acrimony” trade, this too, shall pass.
- Good luck today.
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Position in S&P
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 email@example.com.
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