Todd Harrison: Capitulation in the Bear Camp

By Todd Harrison  JUN 09, 2014 11:15 AM

Classic warning signs begin to emerge.


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There are traditional ways to manage trading and investment approaches. 
Throughout the almost quarter century that I've operated in the financial markets, I've used four primary metrics to help frame risk: Fundamental Analysis (earnings), Technical Analysis (charts), Psychology (mood), and Structural (rates, credit, central banks).

And then there are the nonsensical and anecdotal guidelines that range from Turnaround Tuesday to email indicators. 
Several years ago, on March 6, 2009, I wrote Freaky Friday Potpourri: Darkness Before the Dawn, which included an email from someone who blasted MV for daring to suggest that a rally was in the cards.  You know what happened from there: POW, Alice -- (stocks rallied) to the moon!
A few years later, on September 7, 2011, I dared to ask, Is the Gold Bubble About to Pop? while the yellow metal was trading at $1,900.  The venom I received in response was so nasty that I wrote The Gold Scold the following session.  The bottom fell out, almost the next session, and gold lost more than a third of its value.
On Friday, I received the email below.  I don't share it to rub salt in anyone's wounds -- that's not how we roll -- but rather to demonstrate the types of emails I've received of late:
Todd --

I have been a longtime follower of your work, since your days at, and have always admired your devotion to the things "that matter." I have not always lived that way as much as I should but I will now have more time. You see, I consider myself "blown out" of the market and I wish to pass along to you the benefit of my experience and a warning that might hopefully prove helpful to others: You cannot fight the Fed; more importantly you cannot fight the world's central banks acting in concert and, the practical application of all this: You Cannot Fight this Equity Market.

I have been fighting this market -- on and off, but mostly "on" -- since sometime after the "recovery" began when it became clear that there was not going to be any real reform and thus, no real recovery. At first, I faded the equity strength seeking to profit from what I saw as extremely misguided policies that would certainly lead to another collapse. At best, I reasoned, we were in for an extended period of malaise that would minimize my risk of loss. Later, I faded market strength hoping to "get even" from my then-substantial losses. The market gains were clearly illusory, false, manipulated, (insert your favorite ginned-up market gains adjective here) and would thus lead to even greater declines than previously anticipated.  Most recently, I have faded market strength not to "get even" (out of sight by this point) but to at least make some profit on what was certain to be a significant market comeuppance. You obviously know that has not gone well.

Which brings me to my warning: You cannot short this market. Ever. Not for any reason and not on any basis. Technical levels uniformly hold and bearish patterns uniformly fail, both in markets and in individual stocks, whereas technical resistance levels to the upside NEVER hold and bullish technical patterns ALWAYS work to the upside.
Why? I don't know for certain, but it seems to me that market gains have come to be seen as a birthright by the Wall Street elite who have been the sole beneficiaries of central bank largesse. The Too Big to Fail banks have gotten bigger than ever and Big Corporate America continues to consolidate and swallow or destroy smaller competitors. The interests of the people pulling the strings, not just in the USA but in the world, are clearly benefitted by markets that continue to go up. Further, and most importantly, they have made clear that they can keep them up. They have "won."
You have famously said that "no one is bigger than the market." While this may, in some sense, be true, it is unfortunately inapplicable when speaking of an entity (or entities) which are, in essence, the market itself. This, I believe, is what has occurred with the Fed and other central banks and their political and corporate allies. As long as they can freely print money, and make up new ways to hide and obfuscate the underlying (former) problems related to credit, the markets will continue to rise. And, since no one in any position of power appears to want to change that (and why would they?), they will continue to do so.

Additionally, a quick word about "priced in." Quantitative Easing, LSAPs, or any other market liquidity measures are NEVER priced in until such measures are EXECUTED and COMPLETED. Folks can imply all they want that a market rising into a central bank decision day has priced in QE (or whatever) but the fact of the matter is that is impossible -- until the central banks start actually buying or printing, that excess liquidity has not yet entered the system.  As such, it is IMPOSSIBLE to price it in ahead of time. Once the CB bank-buying starts, equity markets will rally based on the ongoing influx of additional funds with nowhere else to go. 

Thus, if you are inclined to invest or trade, the only rational course is to be long. Not just long, but "locked, loaded, long and leveraged." Shorting, unless in extremely short term and targeted situations where you have close to "insider" information, is insane. You simply have to be long. 

I myself will not be taking advantage of my own wisdom. Aside from the fact that I am virtually out of money (I still have a small retirement -- like that'll ever happen -- pittance available for investment), I simply refuse, on moral/ethical grounds, to participate in this travesty currently being conducted -- the systematic destruction of the middle class, the elevation of a wealthy elite, the punishment of savers, and the mortgaging of our future. Perhaps that is stupid of me. Perhaps it is sour grapes. I suppose, if I had more capital left, that I might be more inclined to just go long on margin, but the idea of participating in this crime against humanity just makes my guts turn.

Anyway, I'm sorry to drag so much negativity into your world. It sounds like you have found true balance, and that your life is now incredibly blessed, so I feel somewhat guilty for venting in your direction, but I felt I needed to say it, and yours is the voice in the investing commentary world for which I have the most respect. I have always admired your style, your willingness to tell it like is, and your devotion to family. Keep up the good work, and I wish you well.
Take that for what it's worth, which is a random example of the frustration, if not outright capitulation, in select rank and file of the investing and trading community.
Random Thoughts:


Twitter: @todd_harrison

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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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