Monday Morning Quarterback: Put Last Week in Rear View
There may have been a lift on a near-term trading basis last week but the longer-term lens remains particularly prickly.
"You learn you can do your best even when it's hard, even when you're tired and maybe hurting a little bit. It feels good to show some courage."
Good morning and welcome back to the flickering pack. After a sloppy and storied start, the bulls pulled it together last week and clawed their way to the first win of the 2008 season.
It certainly didn't come easy-after starting the five-session span in back-to-back triple digit holes, the combination of oversold conditions, proposed stimulus packages, bond insurance bailout plans and pervasive negativity set the stage for one of the sharper Snappers in recent history.
Early Wednesday, while staring deep into the abyss, we scribed Five Reasons for Optimism with hopes of tempering the widespread gloom and doom if only for a trade. A snazzy rally arrived on cue and continued Thursday before giving back some gains and settling into the weekend.
The purpose of the article was not to call a bottom or turn a blind eye to the unfortunate reality that awaits us. It was a simple acknowledgment that on this long hard road, there are two-sided opportunities if we're open-minded, aware and disciplined. The destination, fluid as it is, pales in comparison to the path that we take to get there.
We've spoken of the imbalances that were masked by the lower dollar (-36% since 2002) and skewed by an ever-slimming slice of society (the "have's). While those manifested for years under a seemingly calm financial surface, the pressures cumulatively built and set the stage for the collective conundrum we now face.
The trick to successful trading and investing is capturing the disconnect between perception and reality. After the stunning decline we've seen since last summer-upwards of 50% in the world's largest financial institutions and 20% on the aggregate-a case can be made that a portion of the pain has been priced in.
All we have to do is ascertain how deep this recession will be-and if it will in fact stop there-and grasp the timing of the deterioration juxtaposed against the efforts, public and otherwise, of global central banks, politicians positioning for the upcoming election and a proactive Working Group on Financial Markets.
Easy enough, right?
Minyanville prides itself on offering the financial news you need to know before you know you need it. Our caution seemed displaced as the (dollar-denominated) averages climbed higher these last few years. It is our hope that by the time the collective mindset fully embraces the bear camp, we will be one of the more bullish communities in the financial realm.
That may have happened on a near-term trading basis last week but the longer-term lens remains particularly prickly. Market moves occur in four distinct time horizons (cycles, phases, trends and nuances) within the psychological context of denial, migration and panic. That makes for many moving parts and yes, friends, it's often confusing.
It is critical to understand that while we could continue to see gains, perhaps to the downtrend line in the major market averages, there are several elements that warrant attention.
First, the debt bubble took many years to build and it will take time (and price) to unwind.
Second, as the underlying collateral continues to shift (mortgages, credit card delinquencies, zero percent financing), it's difficult to tell if or when the contagion will shift to containment.
Third, with upwards of $500 trillion in derivatives tying the system together, the pebbles in the proverbial pond will continue to have profound effects on the stability of financial assets.
For my part and with my money, I am operating with two tiers of capital. The first is safely in cash with an eye towards capital preservation. The second is for strategic trading, playing only with what I can afford to lose. And consistent with what my grandfather Ruby taught me, I do not carry an ounce of debt.
Bull markets create wealth and bear markets concentrate it. There will be better tapes and easier times ahead, our mission is to be in a position to prosper when they arrive.
We'll get there together, Minyans. That is, after all, why we've built the 'Ville.
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