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Wind Chimes


In the real world, we're not afforded the luxury of royalties or repeat performances. Every action has a consequence and every yin has a yang.

The wind in the willows played tea for two
The sky was yellow and the sun was blue...

(Robert Hunter)

Do you remember the Seinfeld episode when George tried to do the opposite of everything he knew in an attempt to change his luck?

Good was bad. Day was night. Tuna was salmon, swimming against the stream.

In that bizarro existence, everything seemed to fit into his own perceived reality. And it worked, at least until Friends came on.

In the real world, we're not afforded the luxury of royalties or repeat performances. Every action has a consequence and every yin has a yang.

In the last twenty-four hours, we've heard a bevy of Fed officials opine that all is well with our financial fabric. Inflation is "better behaved," the housing correction is behind us and Alan Greenspan himself said that "the yield curve is no longer a useful gauge of the economy."

As a card carrying capital market participant, I certainly hope they're right. But as we edge through our finance based, debt-dependent economy, prudence dictates taking a look at the risk behind that reward.

Let's say you were running the U.S. Central Bank and foreigners held monstrous amounts of dollar denominated assets. They're upset because the basis of those holdings--the reserve currency of the world--has lost 30% of its value since 2002.

Let's further assume that, on the back of the tech bubble, the U.S. consumer was encouraged to borrow (in order to consume) with hopes that a legitimate economic expansion took root.

You, as the FOMC, would now be faced with a difficult decision. Do you raise rates, to appease the global holders of your debt, or do you lower rates in an attempt to spark further demand?

And if you had to raise rates--if your hand was being forced by those who owned dollar denominated inventory--how would you posture your actions?

Odds are, you would keep the collective focus centered on the risks of inflation and spend a fair amount of time trying to convince your constituency that the devil you know is better than the devil you don't.

There's no grand conspiracy here. There is inflation--in things we need, such as energy, healthcare and education--but there is also deflation, in commoditized products such as laptops, cell phones and plasma televisions.

But that's not really the point of this column. We all know that there are massive imbalances percolating under the seemingly calm financial surface. The question, from a capital preservation and profitability standpoint, is when and how they will manifest.

The answer is simple. They will "matter" when the price action dictates they do. And that will occur, in my estimation, when the chasm bridges between perception and reality.

I've long offered that we will toggle between "asset class inflation" and "dollar devaluation" and, as such, equity gains must be accompanied by slippage in the greenback (as has been the case for the last five years). But while slippage in the greenback has been stealth in the eyes of most Americans, you can be sure that it hasn't gone unnoticed abroad.

Chatter continues to circulate that debasement (away from the dollar) is inevitable--whether it's Hong Kong pegging to the Renminbi, the Middle East flipping to the Euro or China and India diversifying into gold. As a trader, I've always hated invisible catalysts but as an investor, there is a clear utility in recognizing these secular risks.

I don't envy those in the Federal Reserve as they're in a pretty pickle. As long as the screens are green, however, they'll have wiggle room to navigate this cruise ship through the canal. The risk, and by far the most important metric, is psychology. If the Fed's Street cred is called into question, there will be a whole lotta holders looking for bids.

The key tells, from a near-term perspective, remain the financials and market breadth. Those are the trees with "the other side of globalization" being the forest. Many of us have been conditioned by an immediate gratification mindset and, truth be told, big picture concerns tend to cloud trading judgment.

This is not a call to action as much as a plea for awareness. Active types should lean against levels and define risk. Macro folks should use price to their advantage and scale according to price. Me? I do a little of both and a lot of nothing. While I used to move merchandise faster than Black Friday, I've learned that the ability not to trade is often as valuable as trading ability.

We'll attempt to map it out on Friday with some of the sharpest thinkers I know (and we'll do so in the name of children's education). Fair warning, however, space is filling up fast so if you are planning to attend Minyans in Manhattan, I would suggest locking your spot. For those who can't shake it to make it, we'll do our best to represent.

Good luck today.

Position in financials, metals

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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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