Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
First off, let me say that I share your overall bearish "big picture" views on the market. I was watching the movie "Wall Street" the other day (I try to catch it once a year), and the following quotes caught my ear (I am paraphrasing), particularly given the context and subsequent performance of the market in the following decade after '87:
Lou Manheim (early in the movie): "Too much cheap money sloshing around the market . . . Worst mistake Nixon ever made was taking us off of the gold standard"
Gordon Gekko: "The U.S. has become a second rate power . . . our trade and fiscal deficits are at nightmare proportions . . . greed is good (blah, blah), . . . and will save the other malfunctioning corporation know as the US of A."
So some of these big picture bear issues have been out there for quite some time. What's different this time? Not saying I disagree with your big picture analysis, just thought this was interesting.
Minyan Brian Hopkins
I've never been a big fan of the "this time is different" argument as it reeks of rationalization (both ways). The "new paradigm" buried alotta folks in 2000 and a similar psychology seems to surface after every spirited sprint. It's human nature to be optimistic, particularly when history teaches us that the stock market, over time, outperforms other asset classes. So rather than say "this time is different," I would rather address what's different about this time.
A large part of my bearish bent is the belief that excess breeds excess and we're nowhere close to the other side of a bubble. Rather than take our medicine and let the markets efficiently digest the capacity, Elmer tried (and is trying) to buy time and encourage folks to borrow in order to spend. Further, his aggressive rate policy squeezed John Q back into the market by eliminating alternative vehicles as viable investments. As such, the dependence (and leverage) in the market is higher than any time in history.
I don't enjoy being the guy who espouses the risk of financial depression but the probability increases every day we push out the solution. And at this point, I'm not so sure that a solution exists. The only question--and the most important determinant of our success-- is one of timing. Can our Federal Reserve keep the chainsaws juggling for another year? I suppose, but they've painted us into a nasty corner and the world will eventually wake up to that fact. When that happens--and they start to sell our debt en masse--the incremental rate ripples through the financial mechanism will be exacerbated by the derivative webbing that holds us together.
When does it end? Single digit multiples, I fear, and complete financial apathy. There are too many charlatan teletubbies preaching the virtues of the upside without offering sufficient explanation of the cumulative risk. They were held to task after the last debacle but given a free pass once the historic stimuli washed our screens in green.
Our role isn't to tell you what will happen or which financial choices to make. We simply wanna "put it out there" such that you have the tools to make better and more informed choices for yourself. And there are reasons we talk about these issues while the market has a firm tone--for by the time the mainstream press picks up the structural issues, it'll simply serve to explain the lower prices.
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 email@example.com.
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.
Copyright 2011 Minyanville Media, Inc. All Rights Reserved.
Daily Recap Newsletter