Freaky Friday Potpourri: This Day in Market History
The day of reckoning may not be at hand but there is risk in pretending that it doesn't exist.
When Black Friday comes
I'll collect everything I'm owed
And before my friends find out
I'll be on the road
And so here we are, October 19th, a day of lore for historians galore.
On this day, U.S. General George Washington won the last major battle of the Revolutionary War in 1781.
Basketball was introduced to the Olympic Games in 1933.
President Truman signed an official end of the war with in 1951.
Charlie Merrill, Peter Tosh, Peter Max, John Lithgow, Evander Holyfield, Jon Favreau and Trey Parker were all born.
And the Dow Jones Industrial Average dropped 22.6% in the worst one-day percentage decline in history.
22.6%. That's, like… a full month of gains for Baidu (BIDU)!
Indeed, talk about large moves of late and the conversation will likely focus on the upside. It's human nature to discuss rewards after large rallies and risk management when losses mount. That's the root driver of momentum investing and the self-fulfilling nature of the beast.
The only difference between mistakes and lessons is the ability to learn from them. It is in that vein that we've paid homage to the crash with first person perspective from the 'Ville.
Professor John Succo shared his fare from the front lines at Morgan Stanley (MS). Professor Rod David offered his thoughts as well, as did Professor Scott Reeves.
Alan Greenspan, widely perceived to be finest Fed chair in history, weighed in to say that he was completely blindsided on that fateful day. Despite being the first line of defense, he simply didn't see the supply mounting in the distance.
We've spoken at length about the warning signs that appeared on the summer horizon. And we further discussed The Battle Royale between the global credit crunch and coordinated central bank agenda. Hank Paulson and Ben Bernanke, after poetically waxing for months that sub-prime was "contained," quickly realized that it wasn't.
And when those thoughts crystallized, they unleashed the proverbial hounds.
We can talk about the tangible costs to investors, as measured by a 5.5% drop in the dollar since August.
We can noodle the intangible ramifications of their credibility or the waning patience of foreign holders of dollar-denominated assets.
We can discuss all of these things until we're blue in the face but the simple fact is that everything is funny while you're making money.
Even if the currency itself is slowly fading away.
I've always said that, as a trader, I'm not as concerned with our destination as I am with the path taken to get there. I must admit, however, that I am increasingly concerned with our collective destination. If not for my sake, than for my unborn children and their children.
To be fair and forthright, I've voiced these opinions before but they've manifested in a stealth manner. While traditional proxies for financial health-starting with the stock market-have powered on, the chasm between the "haves" and "have nots," coupled with the deterioration in the dollar, has masked much of the societal acrimony.
Indeed, for many people in the U.S. and throughout the world, the recession is already in full swing.
I often ask myself if my concerns are unfounded and if I'm completely off-base with regard to the percolating pressures.
I hope I am but I fear I'm not. More likely, the structural imbalances are cumulative, which is to say that the longer we push out the cyclical ebb and flow of the business cycle, the harsher the other side of that trade will be.
Ben Bernanke and Hank Paulson are no dummies. They understand that in a finance-based, debt dependent economy, we've already passed the point of no return. That's why they shifted the rules at the discount window and jump-started "The Working Group for Financial Markets." They know the stakes and they're fighting for their livelihoods and legacies.
On this, the 20th Anniversary of the Crash, please take a moment for a pause of reflection. The day of reckoning may not be at hand but there is risk in pretending that it doesn't exist.
For if we've learned anything in the markets and in life, it's that those who ignore history are destined to repeat it.
- While we heard low-level whispers of a margin miss for Google (GOOG), we offered on the Buzz while the stock was down $8 (on the report) that, given the current psychology, there would likely be an upside try. We're seeing that now although, through a pure trading lens, that might well be the easy trade.
- As Steve Shobin noted in our chat n' chew yesterday, Bank of America (BAC), eBay (EBAY) and Washington Mutual (WM) gave the tape every reason to sell-off. As the reaction to news is more important than the news itself, we should respect that.
- Man, I would have been very Grateful for this class while I was in college!
- We noted the relative lethargy in the drillers yesterday during the "oops there it is" $90 price point. Keep your eyes peeled in this complex (which, me love long-term while I "listen" to the tape).
- Please note that the drillers aren't rallying with this "oops there it is" rally in crude. The natural question is begged, if they can't lift with this price spike, what are they gonna do when crude reverses lower? We both know the answer to that question, rhetorical as it may be. OSX 300 is first-stop support, if and when, although we'll likely see a deeper retracement.
- Area Minyans are welcome and encouraged to join us at The Bull & Bear (49th & Lexington) right after today's close. Hoofy and Boo will be making their worldwide television debut on Fox Business (5:00 EST) as President Fish and I pull back the curtain. From there, we'll share a few gaggles to celebrate the occasion!
- Can't make it? No worries---the December 7th Festivus will be a much grander affair so lock your spot for this philanthropic trot!
- Note that JP Morgan is downgrading FMCC (Ford) and GMAC bonds and CDS from buy to hold. This, along with the mortgage/ABX deterioration and commercial loan market pressure needs to be respected.
- Fare ye well Minyans and good luck into October expiration!
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