Random Rants for the Road
From our family to yours, may peace be with you!
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River going to take me, sing sweet and sleepy,
sing me sweet and sleepy all the way back home.
It's a far gone lullaby, sung many years ago.
Mama, mama many worlds I've come since I first left home.
Fannie Mae (FNM) sprung a fresh leak yesterday with "new and pervasive" accounting irregularities. The stock got clocked for 10% and is eyeing an organic stock split for the year. I'm not gonna recount my history with this pig, but suffice to say I saw it coming and missed most of the ride. I'm straight with ye faithful--it sucks, it happens to all of us and we gotta look forward to fresh opportunities. Regardless, this remains a potential disaster as it's tied to virtually every financial institution--and there are alotta them these days in our rate dependent economy--through a compressed and leveraged derivative complex. There are two possibilities here--contagion or containment--and that verdict will be heard around the world.
It's no coincidence that both Dubya and Elmer publicly distanced themselves from Aunt Fannie. The writing was on the wall for years--we've been talking about it for a very long time--and this is a nosty and sticky situation. The corporatocracy is a powerful machine and has spent obscene amounts through lobbyists and political power struggles to keep the regulators at bay. There's now blood in the water and the sharks are in a frenzy. Just ask our chum Bill Frist.
I can't seem to shake the analogy between the Roman Empire and the USA. I'm a patriot at heart but, quite frankly, I've been a bit embarrassed by our current policy and administration. There's a certain bravado involved that's inappropriate and potentially destructive. The rest of the world seems to harbor similar thoughts that have cemented since our most recent election. Approval ratings support this assessment and and I gotta think the dollar will someday reflect the same. There are two sides to isolationism and us vs. them could be a very lonely place.
I see a two-pronged depression in the cards as the growing dichotomy between the "haves" and the "have nots" grows. The current ratio is prolly 70/30 as a function of debt and home equity. As the former taxes the consumer and the latter plateaus (or worse) when higher rates arrive, that skew will shift. It's the rate of that shift (the gamma) that will dictate the shock on the financial system and the size of the ripple through our intricate financial fabric. And yes, it could take a while and continue to reward the rich while poverty quietly percolates.
I haven't always been a Debbie Downer--I'm actually a pretty optimistic guy when it comes to counting my blessings and keeping things in perspective. I sometimes wonder if September 11 subconsciously scarred me but I see some things with clarity and lucidity. I've been plenty wrong at times--as have we all--but something seems amiss in this "strong economic expansion devoid of inflation." You won't read it in most papers, see it on most shows or hear it on most radios. But we feel it in our soul, the quiet transition from a proud and noble existence to a simple struggle to survive.
I rambled a bit today and my intention is to provoke thought rather than shape it. As quarter-end beckons and perception dictates reality, the tape is a bit of a toss-up into the weekend. There's no shame in admitting it's hard, just in pretending it isn't and increasing risk without the attendant reward. It's a long, hard road Minyans--one that will be an uphill climb at times--and the onus is on us to take a deep breath and enjoy the beauty of the journey.
I'm going to do that today and begin my adventure in the Middle East. I sincerely hope that fate smiles on you all and, for those observing the Jewish holiday, a healthy, safe and prosperous new year.
Fare ye well.
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 firstname.lastname@example.org.
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