Monday Morning Quarterback: Salvation Lies Within
To get through this we must go through this.
"Let me tell you something my friend. Hope is a dangerous thing. Hope can drive a man insane." --Ellis Boyd 'Red' Redding, The Shawshank Redemption
Someone once said we should hope for the best but prepare for the worst. In the financial system, hope isn't a viable investment strategy but risk management will save you from the worst-case scenario.
Over the weekend-yet another abbreviated respite that screeched to a halt when Asia and U.S. equity futures opened on Sunday-the world digested the latest proposed solution to one of-if not the-worst financial crisis in history.
The IMF started the procession by offering what Minyans have long known.
"Intensifying solvency concerns about a number of the largest U.S.-based and European financial institutions have pushed the global financial system to the brink of systemic meltdown," said Dominique Strauss-Kahn, IMF managing director.
The brink of systematic meltdown, you ask? Credit has crashed, equities had their worst week ever and the contagion has spread to every conceivable corner of the earth.
As horrific as the last six weeks-no, the last twelve months-have been, it can indeed get worse. If, how and when remain to be seen but as the big picture is made up of many smaller pictures, I'll share my current trading posture later on in this article.
What is clear is that cumulative imbalances have been building since the turn of the century and we're in the throes of the "prolonged period of socioeconomic malaise entirely more depressing than a recession" that we warned of in 2006.
Social mood and risk appetites shape financial markets and both seismically shifted when faith in the system and the credibility of our leaders evaporated. The denial-migration-panic continuum is coming full circle and that is perhaps a reason for optimism, if only for a trade.
To get through this, we needed to go through this and we're going through it now.
Minyanville mapped this script for many years. As some pundits-many of whom never saw this coming-scream fire in the crowded theater, we've shifted our lens to identifying potential solutions, providing insight along the journey and encouraging lucidity and perspective as we digest the necessary, albeit painful, medicine.
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