The Piggy Back Attack

By Todd Harrison  APR 29, 2004 8:52 AM

Carry on!


"Take that dress off. I can see your dirty pillows."

--Margaret White, Carrie

Good morning and welcome back to the scorning. The bovine pelting was a crimson belting that left folks freaked that we were melting. While the mainstream press assigns blame for this mess, they're missing the mark on the cause for the stress. "It's rates, it's war, it's long side quitters," Sammy mocked as he spoke to the critters, "but what about the "carry" jitters once put on by macro hitters?" That, to me, is the crux of the flux so let's dive in with these quacking ducks!

I was sitting at a charity function last night (I always try to support my friends) and my mind began to drift back to the Minx. In particular, I was thinking of a phone conversation that I had yesterday with my pal Fleck when we collectively tried to make sense of the flickering ticks. We've both shared a pretty grizzly big picture bent for a bit but the little pictures are sometimes fuzzy as we find our way through the minxy fray. That got me thinkin'--not a shocker--and that seed sowed throughout the night.

This morning, as I was reading the Wall Street Journal and they opined that rates and geopolitical concerns were once again the culprit for the market malaise, I couldn't help but shake my head. I have the utmost respect for their publication and consider it a must read but in this instance, I think they missed the mark. The root cause of the entire rally was liquidity pure and simple. The powers that be injected stimuli and printed money such that the investing public would be flush with cash and put it to work in various asset classes. And just to make sure that their point was well received, they lowered rates to nothingness and squeezed John Q out of a conditioned risk adverse posture.

I give credit to Elmer's Zoo (pun intended) that they've been able to juggle the chainsaws for as long as they have. But while their intentions are clear (to literally buy time), they'll eventually have to own up to the financial repercussions of their actions. The "carry trade" is more crowded than a Grateful Dead parking lot (folks borrowed cheap money and leverage themselves long) and when that puppy starts to unwind, it's gonna create quite the bottleneck. I can't tell you if it's gonna keep goin', and goin', and goin'...but that, to me, is the most intuitive reason why the multiple asset classes (yesterday) all came under pressure at the same time.

How will we know that this unwind is in motion? Unfortunately, confirmation will only come when stocks, bonds and commodities all lower in synch. Liquidity, for all its fluidity, is invisible and trying to game that hand will most likely get you slapped. My intent is to make you aware that it exists and provide insight to the mechanical process. I know that Mr. Succo will follow up on this process but I wanted to share some of the vibes in my crowded keppe.

Mr. Beeks has released the morning beast and while the Stagflation thesis is alive and well, it remains to be seen when the collective psyche will embrace it. The initial knee jerk reaction may very well be "Phew, we're not growing as fast as feared and maybe Elmer won't be as aggressive when he hikes up his skirt." If my fears come to fruition, however, the pieces of the puzzle will slowly show themselves and the most popular investment trade could very well be the "carried out."

Good luck today.


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

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