Todd Harrison: The Comeuppance Nobody Sees Coming

By Todd Harrison  JUN 11, 2014 10:47 AM

See both sides; always see both sides.


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On Monday, I shared an email from a gentleman who not only capitulated on the short side but did so with a rather bold proclamation: You. Cannot. Fight. This. Equity. Market.

He may have been a lone voice, but he spoke for an entire segment of the financial market population that is rarely heard from these days.  While year-to-date gains are decent -- the Dow Jones (INDEXDJX:.DJI) is up almost 2%, the S&P (INDEXSP:.INX) is 5% higher, and the Nasdaq (INDEXNASDAQ:.IXIC) is up 3.5% -- that hardly paints an accurate picture. Since the March 2009 nadir, the Dow is up 162%, the S&P is up 191%, and the Nasdaq is up 241%.

Few folks have kept pace with those heady gains; it required a precise turn at the bottom when the mood was horrible and steadfast bullishness for more than five years through several uncertain and/or overbought situations.  I suppose in hindsight we've lived through the classic denial-migration-panic continuum, as referenced in the chart below, but in real time, the price action was -- and in many ways remains -- surreal.

I, myself, have been entirely too cautious as a baseline; I thought social mood would shape risk appetites, business cycles would evolve, and recession was a healthy and natural progression that couldn't be swallowed whole by the government.  I was wrong, at least when judged by the jury that is the stock market.  What was once a bizarro market -- good news was bad, bad news was good through the lens of QE -- has morphed into a perverse market, where bad news is good and good news is better. 

There are reasons for the bulls to be cheeky; credit markets have profoundly benefited from policy, and corporate balance sheets are as buff as they've ever been.  That was by design and through the guise that the last crisis will be the recipe for the next crisis, which rarely if ever proves true.  Just as risk was transferred from one perception to another -- from the private sector to public pockets the last time around -- it will continue to morph and evolve and migrate until it metastasizes into the next iteration of Too Large to Contain.

The early market price action is a bit sloppy, be it from the GOP shocker in Virginia last night, the World Bank cutting its global economic forecast, or the specter of yet another jump ball in Iraq.  Central banks will argue that they've "got our backs" from here till eternity, and they may well try to do that. but to believe that -- to really believe that -- requires a matter of trust and a leap of faith that I, for one, cannot muster. 

I don't believe ZIRP (Zero Interest Rate Policy) or NIRP (Negative Interest Rate Policy) is "normal," nor do I believe it is sustainable.  Worse, I believe the imbalances it has created are cumulative still and will result in a most unpleasant comeuppance for anyone within spitting distance of financial assets.

And the fact that I'm so reticent to speak my mind and put this out there is perhaps the single biggest reason why I should.

Random Thoughts:


Twitter: @todd_harrison

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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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