Keynote Address From Vail
If we remain aware of our journey such that we're mindful of our experience each day, that's an investment that will pay dividends far more rewarding than the bottom line.
Editor’s Note: The following was the keynote address by Todd Harrison at the third annual Minyans in the Mountains retreat in Vail Colorado.
I thought long and hard about what I was going to say today during my fifteen minutes of fame. I contemplated discussing the excited things we're doing at Minyanville but I know that’s not why most of you have migrated to the mountains.
- Some of you are here to learn.
- Others to network.
- Still others are here because they understand the power of the Minyanville community.
But we all share a common thread, and that is to leave here more equipped and better prepared than when we arrived.
As I thought about how to approach this speech, I found myself circling back to the chat we had in Ojai. A self-check mechanism if you will, as I searched for new and meaningful ideas.
As I chewed through those thoughts, I saw that many of the dynamics remain in play as we gaze across the Colorado horizon.
I started last year by offering that to understand where we are, we must fully appreciate how we got here. There is a difference between legitimate economic growth and debt induced largesse and that’s an important context when having any discussion about the financial markets.
In reading my Ojai vibes, several themes stood out:
- The bullish trends of energy and metals, for instance--two sectors I continue to favor vs. tech and financials on a relative basis.
We saw in June that the sharpest corrections occur in the context of a bull market. We also received a not-so-subtle reminder that the phantom of deflation, if and when it arrives, will know no allies on an absolute price basis.
I eyed the housing market and the bubble we spoke of in Ojai, but I don’t want to belabor that fact after housing stocks have been cut in half since we last gathered in the hills.
The market is a leading indicator and the news we view on the wire has long been discounted on our screens. I don’t think we’ve seen the lows in these stocks but the easy trade has likely passed. The point remains pertinent, however, for holders of real-estate as it’s a lagging indicator of liquidity.
- I considered touching on "asset class deflation vs. dollar devaluation" but I assume by now that we've come to see that we can't have the best of both worlds.
The tie-breaker in that battle will likely be the velocity of money. The fed can continue to print greenbacks but they can’t force consumers to spend. As rates rise and the cost of servicing debt out-paces wage growth, aggregate risk appetites will likely contract.
I thought about discussing the axiom that the only difference between intervention and manipulation is communication as we digest the vernacular from central banks desperate to keep the global economy afloat and the consumer flush.
With thousands of new media channels being birthed each day on the internet, the democratization of information has leveled the playing field of true understanding. While a media oligopoly once dictated the information we read, saw and watched, the digital age is flush with valuable insights if we filter it properly.
There were other pertinent themes from last year:
- Multiple compression as the fatal flaw of fundamental analysis.
- The latent risk of a debt-dependent, finance-based economy.
- The pebble in the pond that is adjustable rate mortgages.
- The potential for further debasement of the US dollar and the need to diversify holdings to reflect that risk.
- And the importance of synching your time horizon and risk profile…
- Big picture theories mean little to the active trader just as daily noise shouldn’t displace long-term strategies.
While I believe that all of these themes will continue to “matter,” they're hardly new to Minyan faithful who have already assumed responsibility for their financial choices.
But there was one topic that I couldn’t seem to shake, and that’s the growing chasm between the "haves vs. the have nots" and the steady deterioration of the middle class.
I offer this not only in the context of our societal fabric but with regard to the growing trend of nationalization and tendencies of international hoarding.
Bolivia, Venezuela, Brazil and other countries flush with natural resources denominated in dollars, seem to be losing patience with our current reserve currency.
Remember, we pointed to globalization on the front end of the bubble as validation and rationalization of a rising tide. There are two sides to every trade and they both warrant our attention as seeds of isolationism continue to sow.
In 2000, I forged a reputation by foreseeing the train wreck on the horizon. In 2003, I earned a reputation by overstaying my welcome in the bear camp. I failed to recognize the power of a coordinated agenda and underestimated the influence of fiscal and monetary policy.
As the dollar declined 30% since 2002, the financial markets were given a new lease on life. The central bank really had no choice as Alan Greenspan deftly maneuvered through massive structural imbalances. He knew, as do we:
- The stock market is the world's biggest thermometer.
- The consumer, at 70%, is the economy's largest organ.
Somewhere along the line, the Federal Reserve shifted from being passive to aggressive in their campaign. The Fed was established to buffer, not initiate price action and it’s been a long time since they practiced what they preach.
I stand in front of you as a man with a great deal to gain from continued prosperity. Five years ago, as the smoke smoldered in downtown Manhattan, I buried myself in this vision called Minyanville. What we have built is nothing short of amazing, not for what I've done, but for who we've become as a community.
As the CEO of Minyanville, I would love nothing more than to stand here proclaiming the dawn of a new economic expansion. That is clearly in all of our best interests and it would bode particularly well for Hoofy and Boo as they set the stage for a fiscal fitness franchise.
As a man who prides himself on being forthright, however, I find myself at an internal conundrum. My grandfather taught me that all we have is our name and our word and I take those words to heart.
That means that I must remain honest at all costs—even if I’m wrong in my assumptions or assertions. If I can't stand here among our community, surrounded by the people I love and trust, and say it like I see it, then I am doing a disservice to myself, Minyanville and all who have chosen to be a part of this family.
My fear is that the probabilities of a prolonged socioeconomic malaise entirely more depressing than a recession are higher than most folks have factored into their risk assumptions.
I say this not as a call or a forecast, but as an observation that isn’t being shared by mainstream media and financial institutions motivated by advertising revenue and trading commissions.
The simple truth is that this evolution has already begun. It’s been:
- Masked by the weakness in the dollar.
- Lost in the chasm between the haves and have nots.
- Hidden by a vernacular that attempts to shape our collective psychology.
But as things we need—education, energy and healthcare—continue to squeeze higher, and things we want—lap tops, plasmas and appliances—lose pricing power as a function of multiple choices on the internet, the seeds of stagflation are readily apparent to anyone with an open mind.
This past June, we saw how fragile the financial fabric was as a quick dip in the averages created a frenzy in the marketplace. We're simply not prepared for a bear market, which is precisely why it will be so painful if, in fact, it continues to unfold.
My intention today is to raise awareness of the possibility of something more depressing than a recession—and it is just that, an outcome in a spectrum of potential outcomes—so that we can collectively prepare ourselves for what’s to come. We should never be one trade away from failure and, as an extension, we should never have a risk profile that’s dependent on a best case scenario.
There is some good news—and it’s not that I just saved $300 on my car insurance. There are ways to avoid the scenario.
- A massive reduction of the cost structure of our global economy through alternative energy sources like solar power would likely turn the trick.
- A transfer of payment through the sale of U.S real estate to foreigners would also mute the structural imbalances.
Those are low probability affairs, however, and my sense is that we’ll eventually live in a two-pronged society rather than a three class system.
If we’re smart, opportunistic and disciplined, we can fight our way to the right side of that fork.
The stylistic approach isn’t sexy.
- Capital preservation.
- Debt reduction.
These are preparatory steps that will, in my estimation, greatly enhance our odds of prosperity.
Perhaps the most important step in our personal evolution is to remember that net worth and self-worth aren’t mutually exclusive. I’m a hypocrite of sorts as, often times, I find myself living to work rather than working to live. But the right mindset is a process rather than a point and every day is a new beginning.
If we remain aware of our journey such that we’re mindful of our experience each day, that’s an investment that will pay dividends far more rewarding than the bottom line.
It’s easier said than done…
- I don’t spend as much time as I should telling my family that I love them.
- Sometimes I fail to appreciate those closest to me, those working on my behalf, those who so selfishly give me the tough love I need on a daily basis.
- But each day I awake, I try to be more conscious than the day that passed, knowing that I eventually won’t have that luxury.
I was giving a lecture at a university this past year and I was asked what my proudest accomplishment was. I paused as I reflected on my professional journey and the gravity of each step. I then said that:
- "My failures are what I’m most proud of, as they remind me that I’ve got the resolve to continue and the depth to respond.”
It’s a tough world out there and you really gotta want it…
I’ve come to view obstacles as opportunities and that is, perhaps, the most beneficial perspective that I can offer you today.
I will leave you with one of my favorite quotes from Mohammed Ali.
“Today I am 59, tomorrow I’ll be sixty. Yesterday I was 22. Don’t wake up at sixty and wish you had today to live all over again.”
I want to offer my profound gratitude to all of you for being part of the Minyan family. I would also like to take a moment to acknowledge the folks in the Minyanville Circle of Trust for their tireless effort and consistent energy.
My definition of professional nirvana is to do what you love, with those you love while serving the greater good. You allow me to live this dream and not a day passes when I don’t recognize that. A dream is only as powerful as those who believe in it and for that, I am truly blessed.
We will do our best to make you proud to be a Minyan and make our community synonymous with trust, integrity, honesty and foresight.
And we will ask the same of you, for if we’re to survive and flourish, there’s only one way we’ll achieve our goals.
Thank you so very much and please, Minyans, enjoy the rest your mountain journey.
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.
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