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The Precipice of Pain




A peaceful place or so it looks from space
A closer look reveals the human race
Full of hope, full of grace is the human face
But afraid we may lay our home to waste

(Grateful Dead)

A wise man once said that if enough people tell you that you're drunk, you'd better go lay down. I suppose that collective reasoning was partially responsible for the "thud" we heard on Wednesday. With the Minx soggy yet far from sober, the sirens wailed from Red Dye and pulled this puppy over. As we peered into our rear-view mirror at the flashing red lights, a moment of anxious clarity emerged and planted the seed of fear in the pits of our stomach.

If nothing else, the crimson dynamic reminded the masses that risk is indeed two-sided. It's hard to blame folks for forgetting that fact as they've been conditioned to believe what they see, hear and read. Nary a day passes without a Fed official or electoral agenda offering a soothing word or soft voice. And if only their perception was indeed a reality, we wouldn't have to face ourselves in tomorrow's mirror.

The powers that be are desperate and underestimating their reach can be hazardous to our financial health. What we must balance is the potential for exhaustion with the more likely reality that this will be a long and drawn out process. Global central banks have tried to contain the chaos with fiscal, monetary and verbal policy but they're slowly running out of bullets. It remains my fear that when one bullet remains in the chamber, the gun will be facing a frightened nation.

There will surely be opportunities to prosper if we're disciplined and lucid. Intoxicated markets are prone to both fits of giddy laughter and rants of irrational rage. The key, for us, is to appreciate the potential for both and allow for a margin of error in our approach. And as the chairs fly overhead and the glasses smash on the floor, we must remember, above all else, that emotion remains the enemy of a sound decision making process.

Stepping up to the trading table, we find our four primary legs in shaky condition. Fundamentals are decelerating, the technicals are troublesome, psychology is fragile and we're operating within a structurally unsustainable model. The whole point of the historic stimuli and constant liquidity was to buy time for the economic recovery to take hold. But just as a drink offers a mask for the drunk, the encouragement of debt and creation of currency has simply prolonged an inevitable hangover.

So here we stand, bellied up to the bar with bloodshot eyes and an already hefty bar tab. I can't tell you how many shots are left in the bottle but a collective resistance has emerged. As the fog slowly lifts, the mindset of the masses will realize that one of two realities will come to pass. Either we'll realize that our credit card is maxed out or we'll simply choose to walk into the sunlight and face reality on our own. Both decisions lead to the same sobriety but a proactive path remains the best bet.

Good luck today.

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