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Outside the Box: Five Potential Surprises into Year-End


This year has been a perfect storm, but how will the story end?

"I took the road less traveled and that made all the difference."
--Robert Frost

Groucho Marx once said that he didn't care to belong to a club that accepted people like him as members. As recession ranks swell and desperation sets in, truer words have never been spoken.

2008 will forever be remembered as the year the perfect storm finally arrived. The toxic combination of financial engineering, debt dependency and immediate gratification commingled like a clap of thunder on an otherwise sunny day.

The script played out precisely as written, although that hardly made it easier to digest.

We've long offered that time and price were the only true medicines for the cumulative imbalances that steadily built through the years. Much like a forest fire, the painful process of price discovery is a necessary precursor for fertile rebirthing and greener pastures.

With a conscious nod that the ultimate market bottom is likely a few years away as debt is destroyed and social mood shifts, we wanted to share five vibes that could manifest into year-end as conventional wisdom catches up with reality.

Reversal of Fortune

As the world worried about inflation entering 2008, deflation was a central theme in Minyanville. We were early as the dollar dripped lower and commodities drifted higher into the summer.

Since July, the greenback has appreciated 21% versus a basket of foreign currencies and commodities are down an eye-popping 48%. All roads lead to deflation, we know, but the path of maximum frustration is often paved with detours.

Keep close tabs on the dollar, which recently registered several technical exhaustion signals. If it reverses lower, it'll pave the way for commodities to enjoy a spirited counter-trend sprint.

Retail Therapy

We suggested in August that retail therapy-or, the need for retailers to visit their therapists-would be necessary as we edged towards the holiday season.

Since that time, Sears (SHLD) has lost 70%, Target (TGT) is off 45%, Amazon (AMZN) is 60% lower and Home Depot (HD) has taken a 30% haircut.

There's no denying that the consumer is on the ropes and spending is on sabbatical. That's front-page news, however, and the market rarely rewards the obvious, if only for a trade.

Seismic Readjustment

Equilibrium between asset classes is askew as evidenced by insane volatility in equities, credit, commodities and currencies.

Some analysts believe that given the current state of credit, fair value on the S&P is close to 600. In a finance-based global economy, further dislocation could conceivably lead to social unrest and geopolitical conflict. Remember, world wars are historically bred from economic hardship.
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No positions in stocks mentioned.

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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