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The Carry Trade


Please don't shoot the messenger!


Where are you going now my love?
Where will you be tomorrow?
Will you bring me happiness?
Will you bring me sorry?

(Crosby, Stills, Nash & Young)

Good morning and welcome back to the mirror image. The say that the more things change, the more they stay the same and nowhere is that more evident than Wall Street. Numerous times over the past few years, traders have towel-tossed and capitulated in an emotionally charged financial frenzy. A simply glance at a five-year chart of the Minx illustrates her bipolar tendencies and at each and every inflection point, the crowd was "going the wrong way!" How do we know where we're going? We don't -- but if recent history is any guide, we should be wary of a crowded street.

That's not to say the manic mindset of the masses can't continue. Elmer is intent on inflating equities and Dubya has an electoral agenda that can't be ignored. Mix that together with a hope that seemingly springs eternal and you have the makings of a potentially powerful equity elixir. Further, we know from experience that emotional tapes can last longer and travel further (both ways) than anybody expects. Many bears were squeezed into submission leading into the bubble, a much larger population of bulls were shut down after the pinprick and, sure enough, stories of ugly ursine unwinds are starting to make the rounds again. What is it they say about bear markets? By the time it's all said and done, nobody makes money -- not even the bears.

Why am I so convinced that Boo's recent blues are a function of bad timing? Well, for one, an alleviation of the overcapacity will likely take years to filter out of the system. I know the Minx/Jinx comparisons are starting to become cumbersome but think about it. The Nasdaq bubble was arguably twice as big as the Nikkei and we laughed at the notion of similarities at the height of the tech mania. Even now, after a few years of pain and red stains, the pundits mock the mere notion of a prolonged and painful road. Look at household debt as a percentage of GDP (I believe it's 80%, or $8.5 trillion), toss in a system built on derivatives and, just for good measure, let's consider the "outside chance" of deflation. I'm not saying it will end with a bang -- and I'm not saying it won't either -- but whether it's a car crash or death by 1,000 paper cuts, a potential patient is among us.

These aren't thoughts that have come to me overnight; this has been my view since the summer of 2000. When I serendipitously began writing my column that July, the very same thesis was considered "absurd" in investment circles. Unfortunately, by the time reality soaked in, a lot of good people viciously lost their life savings. I've said before and I still believe that the bear would be littered with false hope and empty promises. Further, if the Minx is to find the true path of maximum frustration, there must be times that even the grizzlies believe that we've successfully emerged from the muck. Does any of this sound familiar?

I understand that this isn't a popular topic of conversation, but I've been asked to communicate my thoughts regarding this matter. While it's not today's business, per se, I would rather have the discussion while we're in rally mode than jump on the bandwagon after the gauntlet has already fallen. The very fact that the mass majority, individuals and professionals alike, has endorsed the economic turnaround is a flag in and of itself. When's the last time that everyone was right? Yes, it could carry further and "retrace" a meatier portion of the burst dream. At some level, however, factoring in the probability of further pain -- whatever your assumption is -- will likely prove to be a prudent process.

In Minyanville news, I want to thank everyone for the fantastic feedback on the additions to News & Views and Buzz & Banter. As our readership is our lifeline, please know that we welcome your feedback on how to better enhance our community experience. We're still toying with some of the mechanics as we search for the best way to serve the needs of the Minyanship. Our goal is to provide honest and forthright content, add value to your process and provide for the greater good via our philanthropic efforts. With a little luck and a lot of love, we just may get there.

Good luck today.
position in spx, qqq

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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