Monday Morning Quarterback: Containment Spreads to Contagion
...to understand where we are, we must appreciate how we got here.
"Most of these old boys don't have nothing. Never had nothing to start with. But you, you had it all. Then you let your teammates down, got yourself caught with your hand in the cookie jar."
--Caretaker, The Longest yard
Good morning and welcome back to trenches. After a wild ride of pigskin pride and saucy stretch of financial chide, we power up this frisky pup for a fresh five-session set. The weekend action was physical, the games hard fought and the battle lines drawn. And then, of course, there was football.
There was widespread coverage of the big game as the press piled on for a late sack. The New York Post ran a headline that screamed "Shut Up Ben!" following the Federal Reserve Chairman's congressional testimony. CNBC featured politicians who offered that futures traders were to blame for $100 crude. Wall Street chieftains are falling faster than autumn leaves as widely accepted systematic policies came home to roost.
Yep, everyone is quick to assign fault as containment spread to contagion and fortunes were lost in kind. From hedge funds to mortgage bankers to CEO's to government agencies, nobody is immune to the finger pointing and tongue wagging. And you can bet that the blame game will manifest, particularly as next year's election crystallizes on the collective radar.
Over the years, Minyanville laid the groundwork of a tutorial regarding modern day concerns.
The difference between legitimate economic recovery and debt induced growth prefaced the discussion that to understand where we are, we must appreciate how we got here.
The growing dependence on the elasticity of debt and velocity of money in the context of a finance based economy kept the wheels greased and financial assets aloft.
$500 trillion in derivatives connected seemingly disparate spokes of the financial wagon wheel.
The lens of "Dollar devaluation vs. asset class deflation" as it pertained to the rising tide of a depreciating currency, lifted virtually every asset class boat.
We watched this movie through a 3-D lens (dollar, debt, derivatives) but the crowd in the theater didn't care given their rose-colored glasses that tinted the screens green. Everything's funny when you're making money, as the saying goes, and giggles have been in abundance for a mighty long time.
This is not a victory lap. Actually, it's the antithesis of it. If these concerns continue to bear fruit, spoiled apples and sour grapes will be in ready supply and nobody-not even the bears-will feel like they've won. No, this column isn't about "I told you so" or "now you know"-that's never been the Minyan way-this is a call to take a deep breath as work together to find our way.
Capital preservation, debt reduction and financial intelligence. Those aren't catch phrases or cute slogans; they're the cornerstones of a perspective that sit in stark contrast to the A.D.D. immediate gratification mindset that dominates the psyche of the stateside investing public. The sooner we wrap our arms around the shifting paradigm, the better off we'll be as we together map a plan.
And that approach is independent of near-term market direction.
We noted last week that the bears needed to tap high beta-from Google (GOOG) to Apple (AAPL) to Research in Motion (RIMM) to Baidu.com (BIDU)-before a correction could complete its course. Now that they have, the game becomes much tougher although we should remember that these names, which were the narrowest of leadership in tech, have a long way to go from whence they came).
The scariest aspect of these massive write-downs (which I sense will top $100 billion by the end of the year) is that, thus far, it's primarily predicated on the sub-prime fallout from residential real estate. There are a LOT more derivative-laden issues out there, from commercial real estate to consumer credit and credit card delinquencies. The consumer, remember, is 70% of GDP.
I'll again offer that when we see a sharp pullback in commodities or a rally in the dollar, equities will be vulnerable. Counterintuitive, I know, but so is $100 crude near all-time highs.
Please see the dollar this morning as it tacks up fitty bips as crude falls 1.5% and the metals get waxed across the board (gold -$18).
They finally got to Aunt Fannie (FNM) and, after many years of watching her get drunk at the family barbecue, it stands to reason that I wasn't here when she finally fell down. The market, if nothing else, seems to have a sense of humor.
Festivus. December 7th. Minyanville comes to life in the name of Ruby Peck and in the interest of children. Be there, my friends, as it'll highlight the human capital that comprises our community.
UBS (UBS) announced over the weekend that it was gonna cap salaries at $750,000 and compensate key players with more equity. This is a big step by the bulge brackets and, if it sticks, will reverberate across the industry. We've been talking about this for years in the 'Ville and it will likely get dicey on the Street. I do believe that, in time, hedge funds will absorb broker-dealers but alas, that's a conversation for another time.
Jammy morning, Minyans, I'll see YOU on the Buzz!
Holiday Festivus is here! Come join us and support the Ruby Peck Foundation For Children's Education at an old-fashioned Southern-style hoe-down in the heart of New York City on December 7th. Click the image below to learn more!
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