|Minyanville Round Table: Social, Political, Economic Polarization Threatening Recovery|
By Kevin Depew JUL 08, 2011 11:00 AM
Kevin Depew, Peter Atwater, Conor Sen, and Professor Pinch discuss the European crisis and what it means for the coming years.
Peter, I agree. The ECB's course of action is reckless and idiotic. "Trash for cash" is not a strategy that will solve this mess. But, everyone there is afraid of letting go of the dream: both the euro & the EU. And they won't let go of it until there's no other choice. I have no feel for how long they'll try to hold on to it, but they will.
This is interesting, and a great way to put it: "I completely understand. You have a real economy that is showing potential, but a macro construct that is just plain unhealthy." The uncertainty is terrible, but we will eventually repair the macro construct... or not. That, in my opinion, is the ultimate bull versus bear divide. Bulls believe we will inevitably repair the macro construct and emerge with something new, while bears believe we will not.
I don't know if I need to add it, based on what I've written on Minyanville, but will: I'm in the bull camp and believe that we reconstruct this and rework it into something positive and unforeseen. The white swan. There will be much noise in the meantime, and the noise will be intense, but to me, if you can find quality companies that you can imagine might be around in 2025, at compelling valuations, and I think you can (See Minyanville commentary on large cap tech stocks such as Microsoft (MSFT), Cisco (CSCO), Intel (INTC), Google (GOOG) and Apple (AAPL)), then this is one of the greatest long-term buying opportunities of individual equities in a lifetime. Remember, too, the most important point, that the narrative always survives even as the mode of projection shifts. The current macro construct is like our TV set. It's how we view valuations, currencies, debt, relationships. Ditch the TV set, however, and we still have the media. We have revolutionized -- and are feeling the impact now of it -- immediate communications. By immediate I mean proximal and physical. Finance is a form of communication, but a secondary form, always subordinate to the physical, which is why it has always gravitated toward the immaterial, as if to disguise its origins, "filthy lucre." Its revolution comes next, is occurring now.
I'm in the bull camp as well, I just think we have to get some combination of a fairly massive debt jubilee/reconciliation, whack the top 1%, help out the bottom 50%, and/or break up Too Big to Fail and some of our archaic political/corporate/media/academic institutions along the way. Do I think the major US markets, let alone individual names, double over the next 10 years? Yes. But that path is going to be incredibly bumpy, and I suspect there will be major crises along the way (just as there have been over the past decade, and throughout history, of course).
1) Bullishness wins way more than it loses. There will be a constructive outcome from all of this, the question is how much pain is endured in the process.
2) I'm starting to wonder how significant these crises are. None of us has the context to know what it was like to live through The Banking Crisis of 1907 or the Wiemar Republic or The Great Depression. So I'm starting to wonder if it's merely a function of the instant accessibility to so much media all the time. That maybe these aren't big deals or at least not as big as we hyperbolize and pontificate them to be.
Kevin outlined it: Either these issues get resolved or not. We wring our hands and speculate and opine 24/7 these days. And why? To pass the time. We already know the possibilities. There's five chess pieces left on the board and several sequences of moves are known. There's not much left to say or add.
I know collectively we've spilled a lot of virtual ink on this. But sadly, it seems we're going to spill even more virtual ink on this kind of crap before it's over.
Meanwhile, I'm just going to enjoy the beach.
One of the toughest conversations I had to have with my clients last year was the one where I told them that the core fundamental of banking -- credit -- no longer mattered because all of our assumptions about borrower repayment patterns were going to be trumped by social and political unrest. Rather than being the dog, the banks would become the tail.
I don't know if this is because we present value too much from valuation perspective, we get overwhelmed by interconnectedness (both systemically and psychologically) or what -- maybe a combo. But the pattern is clear.
Finally, to Kevin's point about stocks, I agree that there are and will be many opportunities. The problem that I see is that those who determine price -- the top 1% economically -- are beginning to come under siege -- socially and politically. And whereas in March 2009 politicians were willing and able to do whatever they could to help this group, today the opposite is true. (As Stephanie Pomboy pointed out in her piece this week, from an economic dispersion perspective we now resemble Jamaica!)
As I try to narrow it down, it feels to me like price stability is entirely a function of the top 1% confidence in whether they can ride this out. If they can, they stay in. If they can't, they leave. That said, the hedge fund closures by successful managers makes me think that the smartest guys have already figured out that they can't ride this out and it is better to exit sooner rather than later.
The net to me is that we have a white swan in terms of business opportunity with a black swan in price.
If the banks are the leading indicator that I think they are, from here on out, price will be determined in the Halls of Congress and in the streets of Athens (if not Detroit).