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Monday Morning Quarterback: Back in the U.S.S.A.!


The government has changed the face of the financial world.


"You say you want a revolution, well you know. We all want to change the world."
The Beatles

No, you weren't dreaming. The construct of capitalism forever shifted Friday when short sales of the financials were banned and the government declared martial law.

It was an historic moment that changed the face of free markets and altered the structural integrity of the system.

To be certain, there was-and is-genuine crisis and to fully appreciate the severity of the situation, we must understand how we got here.

That educational process isn't a sound bite or quick conversation.

It is precisely why we started Minyanville.

To educate and enlighten, to provoke rather than shape thought.

Minyanville's Why Wall Street Will Never Be the SameWith that mission in mind, I would encourage folks to read through the many links nestled in last week's column, The Upside of Anger.

It will provide the necessary context for future discussions as we wade our way through these tenuous times.

Wall Street has infected Main Street with its problems.

It's imperative that Main Street understand the root causes of the problem so we can collectively navigate it.

Clarity Now

We've been offering that the credit crisis must resolve itself in one of two ways as the debt issuance mounted on the September horizon.

The first is credit cancer that is chewing through various industries. This will phase through homebuilders, banks, "financials in drag" (such as General Electric (GE), General Motors (GM) and Ford (F)), technology, retail, credit card companies and commodities until the body is rid of disease.

The other is an outright car crash; a collision where credit seizes, capital markets freeze, price discovery permeates and social mood shifts as we come to terms with the new world order.

The government is attempting to buy the cancer and sell the car crash through the massive bailout and banned short sales in the financials. There has been much debate over their actions but it is what it is and we'll do what we must.

The simple yet scary truth is that if the government continued to administer ad hoc drugs to mask the disease, the stock market would have experienced a cataclysmic crash and that's not something that benefits anyone.

As a financially conservative social liberal, I'm a proponent of free markets.

I've long written that time and price are the only true solutions for what ails us and we need to go through this to get through this.

Given the derivative machination tying together the global economy-upwards of $500 trillion notional-allowing the market to take that medicine would have been akin to unleashing dominoes laced with dynamite.

It would have destroyed the capital market structure of our finance-based economy. The cumulative imbalances have been building since the turn of the century and have grown in magnitude and consequence.

I don't profess to have the "right answer" as I'm not sure one exists. As this process of price discovery permeates, we'll need to see all sides and allow for them all.

Capital preservation, debt reduction and financial intelligence are independent of directional views. They are the construct of financial survival as we fight our way through this war.

"You weep for Santiago and curse the Marines; you have that luxury. You have the luxury of not knowing what I know: that Santiago's death, while tragic, probably saved lives and that my existence, while grotesque and incomprehensible to you, saves lives."
--Col. Nathan R. Jessep, A Few Good Men

As I synthesized these historic times, my sadness shifted to an insatiable desire to identify solutions. To do that, we must first understand the nature of the beast.

It's a moot point to debate the fragility of the system or the financial fabric that comprises it. There is plenty of blame to go around and that extends to the financial firms that repackaged risk and created this monster in the first place.

With that said and respected, I would like to draw your attention something I picked up over the weekend. There is chatter on the beltway that we've been the victim of economic terrorism, a coordinated short raid coming out of the Middle East.

While we don't "do" rumors in the 'Ville, my source is well respected.

Further, it makes intuitive sense as the goals of terrorism are economic destruction and social upheaval. The stock market is the world's largest thermometer and "breaking" the capital market construct-as some would say they did last week-would effectively achieve both goals.

Whether or not that proves true, I would expect a coordinated agenda to emerge from Washington akin to what we saw after September 11th, 2001.

During that period, the lines of distinction between bullishness and patriotism blurred and it was considered un-American to be a bear.

What we saw last week was in many ways an extension of that as it's now illegal to bet negatively on a select-and growing-segment of the market.

That's phase one, I believe, and phase two will emerge as a growing chorus that if you're not part of the solution, you're part of the problem.

I will be very clear. Minyanville is as American as apple pie. We love everything this country is supposed to stand for. We love capitalism. We love small business. We love the notion that you can invest in what you believe in and be rewarded for your efforts.

We have been critical thought leaders into this crisis and we will continue to offer our very best vibes as we edge through it. This is bigger than the next best trade or a quick little schnitzel. It's about preparing for the future with integrity so our children will have a country they can be proud of.

We, the people, must persevere and it's incumbent on us all to do just that, independent of whether we agree with the steps that are being taken.

History Doesn't Always Repeat but it Often Rhymes

Following this profoundly stressful stretch, I pulled an old fashioned Friday night face plant at the end of last week. When I arrived home, I cracked a bottle of Pinot, ordered some Chinese food and searched pay-per-view for some mindless entertainment.

I stumbled upon Dog Day Afternoon, the story of the 1972 bank robbery gone awry. As there are no such things as coincidences, the similarities between past and present day began to crystallize.

Societal acrimony was running rampant. Tensions were running high.

Heck, the scene when Sonny lobbed gobs of money under the helicopter and the masses scrambled for it was eerily reminiscent of Ben Bernanke.

I bring this up for a few reasons.

First, it's a pretty good movie-even though Jack Nicholson and One Flew Over the Cuckoo's Nest won the statues-and secondly, it segues nicely into an analog fished out by Professor Kevin Depew.

The present day path continues to track the period from 1971 through 1976. While there are dangerously different structural underpinnings now, I thought this warranted a mention.

Click to enlarge

Kevin also drew our collective attention to the following historical perspective on Friday's Buzz & Banter.

"Attached is a chart of a market, Pakistan's Karachia 100 (KSE100), that back in June banned short selling for what was supposed to be one month.

Click to enlarge

Some things to keep in mind.

1) The ban, initially for 30-days, is still in place.

2) The limits/collars on trading were set at -1% and +10% (all trading halted for the day when stocks go down 1% or up 10%).

3) Those collars were taken off on July 14.

Other, Random Thoughts as we ready for another Freaky Week:

  • This massive intervention brings Our Wishbone World back into focus.

  • Through that lens, I will again share that I'm surprised the dollar is acting as resilient as it has since the bailout was announced.

  • The end of the world as we know it! The decision to scrap the Wall Street model and morph Mother Morgan (MS) and Goldman Sachs (GS) into traditional bank holding companies is the end of an era. We will delve deeper into those discussions in the days ahead but suffice to say that it's the exclamation point on our series last week regarding Why Wall Street Will Never be the Same.

  • If the government has "bought the cancer, sold the car crash," doesn't it make sense that short-side attention spans will shift to retail (as we saw with Target (TGT) and Wal-Mart (WMT)) and tech (Dell (DELL), Intel (INTC)) on Friday?

  • There is a profound difference between words and life. We've been talking about societal acrimony for some time but writing it and experiencing it are two different worlds.

  • Indeed, after a frantic phone call with someone tied up in the Reserve Primary Fund-someone who desperately needs to tap their money market and is not being granted access-the dichotomy hit home in a hurry.

  • Ditto conversations I had with six separate people who worked at Lehman Brothers, one of them a "lifer" whose retirement money is now in the hands of bankruptcy proceedings.

Finally, and tying this column up with some good energy, someone once said that you get out of something what you put into it.

I've put the last seven years of my life into Minyanville and our entire family-MVHQ staffers, our awesome professors and our investors-dared to dream alongside me.

The feedback last week was fierce from around the world. Hundreds, if not thousands, of e-mails and phone calls from afar served to validate our mission. We have one heck of a community, my friends, and I wanted to extend gratitude on behalf of the entire team.

Along those lines, the following letter was hand delivered on Friday and I share it for the benefit of ye faithful. This isn't about "me"-it never has been-it's about "us", the collective us, now more than ever.

You should all be proud.

Dear Todd,

I began reading Minyanville in July of 2007 and when I reflect back upon the countless wisdom and insight it has provided me I become thankful. As I sat in my apartment Sunday night, trying to digest the historic events that were unfolding, it became clear to me that it was finally time to contact you and thank you for your tremendous efforts. It was then that I realized that just as the financial market turbulence seems to be at its worst, it is at precisely the same moment that the website and community you have created is more valuable than ever.

I would like to volunteer at Minyanville doing whatever tasks your company may need to have done. You often speak of giving back and I would like to do my part. In particular, the posts of yourself, Bennet Sedacca, Mr. Practical, Kevin Depew, and Jeff Saut have provided me with immeasurable benefits and I feel it's the least I can do in return. I currently have an 8-5 job, but I am willing to work weeknights or weekends for free. At the risk of sounding too cheesy, being more closely involved with Minyanville is all the compensation I need.

If this request is too out of the ordinary or not feasible in any way, than I ask that you please ignore it. If in fact you could use my services, please contact me and let me know. Regardless, the spirit of this letter is to compliment you on what you have built, and let you know how much it is appreciated. Keep up the great work!

Minyan Brian

That's good mojo no matter how you slice it and I look forward to shaking his-and your-hand at the December 4th Festivus to benefit The Ruby Peck Foundation for Children's Education.


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