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Climbing the Wall of Depression

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Opportunities along the long, hard road.

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We've long said we're witnessing the most interesting juncture in the history of the financial markets. With each passing day, this prophecy continues to self-fulfill.

Sunday night, when the proverbial schvitz was hitting the fan, I scribed an unfamiliar vibe. It was a constructive column on the financials, the first such piece I've written in years. I've been a furry bear for a long time - quite early, I know, and perhaps I'll suffer the same fate again. But the pieces of the puzzle fell into place and I had to let it fly.

To be clear, I'm not trying to call THE bottom or take a victory lap. I believe we're in for a long, tough and dare I say depressing road that will take many years to unwind the cumulative imbalances that have built as a function of financial engineering. Just as there were years when the market rallied during the great depression, we'll likely sing the same song as we stride down this seemingly sullen stretch.

We can debate the merits of the socialization of markets until we're blue in the face. I've weighed in on this repeatedly and continue to believe there is a drastic difference between taking our medicine and being injected with drugs that dull the pain. The doctor bills that are being formed in the process will burden our children for generations to come.

Hank Paulson yesterday pointed to Bear Stearns (BSC) as "the other side" of moral hazard and perhaps he's right. What he failed to say is that political and government policy created this conundrum in the first place. If Alan Greenspan allowed us to enter recession following the bursting of the tech bubble, we would be that much further along the road of legitimate recovery.

Be that as it may, our ultimate destination isn't as important as the path that we take to get there. The battle between hyperinflation and deflation continues to rage with the former storm gaining steam as a function of socialist intervention. That will end when foreign holders of dollar denominated assets finally balk. If they could do this without pulling themselves into the abyss, they would likely have already walked.

With this morning's earnings reports from Goldman Sachs (GS) and Lehman Brothers (LEH), the Bear Scare has been given a reprieve, at least for the time being. As discussed yesterday on the Buzz & Banter, I traded from the long side and carried risk home overnight. I will make sales into strength, trail stops on my positions and practice discipline over conviction as I shuffle around a long thesis. I don't believe that was THE low but it may well have been "A" low in the context of a trade.

Real risk remains but therein lies the keys to reward.

Good luck today.

R.P.

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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 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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