A Thirst for the Truth
People are so thirsty that in the absence of water they’ll drink the sand. 
They don’t drink the sand because they’re thirsty—they drink the sand because they don’t know the difference.
As we edge through these trying times, once trusted information sources are being challenged. This has spread throughout the societal spectrum—from financial advisers to mainstream media to politicians—with accountability being demanded as a function of frustration.
We’ve long offered that the leaders who emerge from a crisis aren’t the same as those who enter it. While that was an interesting debate for some time, a snapshot of our current conundrum has brought it to bear.
Citigroup (C) traded as a penny stock last week and General Motors (GM) was fitted for a toe tag. Heck, even Warren Buffett’s Berkshire Hathaway (BRK-A) and General Electric (GE), once considered untouchable, were caught in the credit crosshairs.
I recently offered that March Madness was upon us with a 20% move likely in the near future. The feedback from many on the message boards was that without taking a definitive directional stance, there was little, if any, value in sharing those thoughts.
My response is that the market is a movie, not a snapshot, with a multitude of ever-changing variables continually rewriting the script. To appreciate where we’re going, we must see—and respect—both sides of the ride rather than relying on any one opinion that tells us what to do.
Indeed, that very mindset is what got so many people into trouble in the first place.
The binary dynamic continues with tomorrow’s House Financial Services Committee meeting on Mark-to-Market accounting next up as a potential catalyst. While Ben Bernanke voiced disapproval of outright suspension yesterday, it remains on our trading radar.
Should they relax the rules, we’ll see a reflex rally that skins the bears. If they leave current policy in place, the risk of a systemic meltdown rises in kind.
I’m a free market advocate who believes time and price are the only true arbiters of our financial fate. Still, with that said, a shift in Mark-to-Market or Credit Default Swaps may indeed be needed to stabilize the patient before he flat-lines. 
Where You Stand is a Function of Where You Sit
I operate with two buckets of capital—a short-term active trading account and my long-term nest egg, which has been 100% cash for some time.
While most folks don’t employ the same stylistic approach, I can only share what I’m doing, why I’m doing it and when—along with how—it’s being done. It would be disingenuous to offer outright advice given I don’t know the time horizon and risk profile of a faceless audience.
With that said, I offer these thoughts—sometimes right, sometimes wrong but always honest—with hopes that sharing my process adds value to yours.
In my active account, I’ve been trading from the long side with an eye towards Martin Brodeur (a kick-save by the government). While I use trailing stops to manage intraday risk, that won’t protect my portfolio overnight. As such, I’m keeping a very tight risk leash lest we see white flags and black swans.
Through a longer-term lens, S&P 600 is where I plan to put 25% of my cash to work. I’ve been weighing potential vehicles including SSO or SPY (I’m leaning towards the latter as I don’t trust leveraged ETF’s for anything more than a trade), gold (preferably after the devil of deflation has its way) and the Japanese Yen (FXY).
The great unknown—and why it’s so difficult to map any plan with certainty—is that the field is literally shifting underfoot, akin to playing football during an earthquake. 
The U.S. dollar remains a key variable and I’ll look to push more chips on the table when it flips the downside switch. While the dollar and assets classes can both trade lower, a weaker greenback is a necessary precursor to higher asset classes for as long as it is the world reserve currency.
This is indeed a new world order, one that will forever change the perception of financial markets. It is my sincere hope that, as we navigate these twisty turns, we will pave the way to old school values where your name and word mean something and honesty, trust and respect are the foundational construct of future endeavors.
R.P.
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 todd@minyanville.com.
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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You said:
"It is my sincere hope that, as we navigate these twisty turns, we will pave the way to old school values where your name and word mean something and honesty, trust and respect are the foundational construct of future endeavors."
AMEN
A lack of it is what brought us here so if we gain the above we will all be ahead.
Keep up the good work,
Eric
Did it happen before the current credit aneurysm was discovered?; or the last one perhaps?
Before Madoff?
Before Worldcom or Enron?
Before "deficits don't matter" federal budgets?
Or social security lock boxes that exist in Neverneverland?
Did it happen somewhere between the arguments for absolute belief in free markets or absolute belief in the nanny state?
Perhaps it is the result of living with the best judicial system money can buy.
Whenever it happened I wish you all the best in turning back the clock.
Thanks for keeping it real.
For an understanding of how this might have come to be, I invite you to read "The Sibling Society" by Robert Bly. The book's premise is that as society lost the rituals and structures that clearly delineated adulthood from adolescence, more and more people who were physically mature, kept their adolescent ways. Over time, this has lead to a condition where few role models exist for adolescents to observe and understand what it means to be an adult (i,e. you have a responsibility to help maintain your community, and an obligation to help raise the generation that follows you).
Thanks for sharing the process on your long term funds. Could you elaborate on the gold - are you implying that S&P 600 will likely mark the end of the deflationary process as well? Also, I don't understand the long Yen - with more debt per capita than the US, why will the Yen do well in an inflationary environment?
Thanks
The binary dynamic continues with tomorrow's House Financial Services Committee meeting on Mark-to-Market accounting next up as a potential catalyst. While Ben Bernanke voiced disapproval of outright suspension yesterday, it remains on our trading radar.
Should they relax the rules, we'll see a reflex rally that skins the bears. If they leave current policy in place, the risk of a systemic meltdown rises in kind.
You seem to have a one sided view on the binary reaction. I don't think it's that simple. Suspending M2M calls into question accounting veracity and transparency and may run off buyers, especially foreign. Conversely, doing nothing may convince some that the government is begining to think they've done enough triggering an "it's finally over" rally.
Is it time to start building a pyramid? We do need the Jobs! So let's build a huge Pyramid out on the flat lands of Nevada. We can Hire the Illegal Russians to truck the rocks down From Montana to Californian and have the Illegal Chinese and Asians and Mexican square them up. The Illegal Russians could then haul them out to the flats of Nevada on their return trip to Montana. We can use the Pool of illegal migrants from all over the South West to start setting the stone. With the short estimate of ten million illegal Migrants from Mexico and then all others combined we may need to build a cluster of Pyramids to keep them all busy. But that's good. Because we can hollow the pyramids out then stuff them full of the Thieves from Wall Street and the biggest part of our political system. We could toss in the likes of Bernie Madoff and that guy Stanford and the Koz from Tyco. Top them off with the Chiefs from our financial systems and we would have a bio hazard waste site that would need monitoring for life. It could become a super fund site! All the Illegal Arabs here in the U.S of A who have the experience of watching over Pyramids would have jobs for ever.
Holly Googlephuck! Mr. King has nothing on me. I too have a dream.
Have a wonderful day.
JPM
I am sure you all can think of examples from Hollywood to Washington and New York. I have my own list but don't want to create controversy. An example however might be Donald Trump. I see a bunch of people lost their deposits on a Resort development with his name all over it when it declared bankruptcy. Yet he continues to be rich and famous.
But Madoff is a ponzi scheme artist, Mozillo a crook (IMHO), Buffet got caught playing with WMDs that he warned us about, and Paulson was just playing the Godfather for the GS boys.
They don't drink the sand because they're thirsty—they drink the sand because they don't know the difference."
This analogy hurts a bit - okay alot. :) People know what sand and water are. I've never met anyone so desperate for water that they down a solid substance.
Let's try this one - *grin*: The media is not sand - it's kool-aid. It's sweet, easy to drink and there is water in it. In the big scheme of things, however, kool-aid is expensive, makes you fat and it's not what you actually need.
Also, it seems like this article assumes that our economic patient isn't pretty much DOA. It is. IMO, the credit crisis is about how money flows in and out of large organizations, including the government. They created an unstisainable system - suspending mark to market stuff (which each organization chose) is only a way to attempt to kept the party going a little while longer. We need to reinvent, not spend time and money on zombies.
If I may tell you a story that was told to me a long time ago by an acquaintance prior to his graduation with his advanced degree in accounting. Most people may have already heard it but I still consider it of some relevance.
Three highly qualified applicants for a CFO position at a fortune 500 company are being interviewed by the CEO who call them into his office one at a time and explains that how the candidate responds to the question he is about to ask them will be weighted heavily in the selection process. The first applicant is a female to whom the CEO asks; What does two and two equal? A look of surprise crosses her face as she quickly responds "why four of course". The CEO thanks her and calls in the next candidate. The second candidate, a male with the look of an athlete is ushered in and asked the same question. His is the look of indignation as he responds "four sir". The CEO thanks him in kind as he calls for the third candidate. Now the third candidate is a man with a perpetually worried look on his face, as though he had left something on the stove at home. When asked what two an two equaled his eyes tightened and shifted from one side of the room to the other as if to quickly look over his shoulder. When his eyes finally came back to meet the CEO's eyes he responded "What do you want it to equal?" The CEO smiled and extended his hand.
Thank goodness it is just a story; . . . right?
