Truth and Consequence
“He who learns but does not think is lost. He who thinks but does not learn is in great danger.”
--Confucius
A Chinese philosopher said that when it’s obvious goals cannot be reached, don’t adjust the goals—adjust the action steps. Global central banks have taken those lessons to heart.
The construct of capitalism has forever changed and investors are spinning from the insane volatility gripping financial markets. 20% moves in major market averages—session over session—are tough to stomach regardless of your directional bias. 
One year ago, when the writing was on the wall as the Dow Jones Industrial Average probed all-time highs, pundits confidently proclaimed there was clear sailing ahead.
Last week, as perception caught up with the daunting reality of debt and derivatives that we’ve warned of for years, depression was debated across mainstream America.
You can’t blame folks for being confused. We’re past the point where bulls and bears profit or lose. We’ve entered a new world order, a scary stretch where politicians rewrite history on a daily basis in an attempt to escape the devil of deflation.
There are certain things we know for sure. Universal truths, if you will, that can provide clarity amid the confusion. We’ll tackle five themes today with hopes that we’ll shed some light as we together find our way.
The Measuring Shtick
Two trading dynamics considered gospel for many years have effectively been debunked. The first was that lower crude would serve as a positive equity catalyst and the second was that a higher dollar would bode well for stocks.
We live in a Wishbone World with dollar-denominated assets on one side and the greenback on the other. One of two things must occur: either the world reserve currency will debase, paving the way towards hyperinflation, or the dollar will strengthen as debt destruction continues it’s natural course.
The government is attempting to buy the cancer and sell the car crash. The mere perception of “success”—a whiff, if you will—should be enough to shift psychology to the other side of the ride, damaging the dollar and propping stocks higher for a trade.
Fund of Funds
The hedge fund bubble popped this year and the carnage has been pervasive. On top of regulatory scrutiny and operational restrictions, the correlation of strategies has buried the best in breed well below their high water mark.
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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The USA will come back from this but it will take a long time. My guess is sometime after 2035 if the Census demographic prediction proves accurate. If I am correct there should be a real resurgence by 2060.
The Minyanville emphasis on education for very young children is well placed. An excellent investment in the future indeed.
Unfortunate that opportunities forstalling this reality have been squandered.
now.... hmm, well, this is ridiculous.. what do I trade now?
I used to read several sites daily and now I find myself (almost) exclusively here. Yes, you guys are THAT good.
If this keeps up, I'm gonna buy a hat.
I believe we will see $1/gallon gas in this country sometime in the next several years. The only question for me is will we go through hyper-inflation first. Of course, $1 gas means we're in a severe depression.
There are natural consequences to decades of over-spending and over-consuming. We can't delay facing these consequences forever.
So far, all I see in the government's supposed fixes is people unwilling to deal with reality.
Why is no one willing to answer a couple simple questions:
How does borrowing (or 'printing') more money fix a problem of too much debt?
How does the United States reverse a huge current account deficit with our dependency on oil and with the baby boomers about to leave their peak earnings years and beginning to draw down retirement accounts, Social Security, Medicare (not to mention selling their houses into an already glutted housing market).
Until these questions are addressed the rest is just whistling in the cemetery.
In addition to the Hoofy and Boo mugs, given this market,
I could use several that read:
"The market is up today" (with a graph)
"The market is down today" (with a graph)
"I love the smell of socialization in the morning", a gift mug for Hank
"Hit it to quit it"
"Gate sniffage!"
Therefore I could pick the appropriate mug in the morning.
P.S. Could you make sure they are lead free? There are already enough toxic metals in the market, don't need any of them in my coffee mug
down we have to export more than we import, or to put it another way we have to become a productive based economy instead of a consumption based economy.
Printing or borrowing money is to subsidise our lack of economic output. When a country ships it's production off shore, and those off shore economies are not obligated to contribute to those costs our nation and economy require to function, the unfunded economic costs must be funded by the government. We have not only lost jobs in our country, but we have also lost the support to the overall economy those jobs would have helped to pay.
Both problems have the same solution. We need to export more than we import, we need to produce what we need, or we need to do without.
None of this will currently work because our economy and government are fundamentally based on the assumption of growth by any means, primarilly debt expansion, instead of an economy based on a balance between productivity and need.
For the rest of you all, I can only lay off so much betting, but even odds that after 4 years of the next presidential administration, we will see the debt ceiling at 18 Trillion dollars no matter who is in office. Who wants to be the bookie?
2 points: 1) it is a long way from "the subprime issue is well-contained" to "holy sh!t the economy is in the tank." 2) I cannot be alone in thinking that it is constructive at long last to have this charlatan making at least some small effort to say something honest.
In addition to the debt you mention, I think you can add that second rogue wave I mentioned-rising oil prices. On top of that the $50 Trillion in unfunded liabilities to baby boomers (rogue wave #3)
So in my opinion, all of this will force the country to once again produce real goods, and innovate on energy, technology, infrastructure, etc.. I don't think we will have any choice as the inflation caused by the debt, oil, and other rising commodity prices will eat us alive. The amount of inflation seen will be proportional to our ability to pay for it. And if we don't have this growth, then other emerging economies will, and our rate of inflation will just be that much higher.
No more financial engineering to pay for real goods.
There is the very real possibility that there will not be enough cheap energy to support large Global growth rates, until alternatives come on-line in a big way (10 years). So just for that reason, a strong economy with high growth rate will be a large advantage.
Fortunately this is one of the most innovative countries, when we have leaders that support it.
It all depends on your World view, and the vision you have for this country. Some of our current "Berries" have been trying to turn the country into the "Third World" model, where there are only two classes (ultra-rich, and poor).
The problem with this World view is that everyone does better when people can afford goods. There has been very little trickle-down.
Right now there seem to be very many "Berries", in both parties, who either are clueless to economic realities or share the above World view.
For example, the current crisis was predicted years ago on Minyanville, yet where was the concern? Which "Berries" sounded the alarm?
I hope we are smart enough to elect some pragmatic, common-sense leaders who will actually do something.
Did I mention an election was coming up? All, just my opinion.
I hope the goal is reached, but human history belies any assertion that we will. Time for everyone to brush up on Robespierre and the Reign of Terror.
One question, being that gold is heading down significantly, doesn't that mean that the market is betting that Ben and Paul cannot inflate enough fast enough, and that the deflation monster will eat us all?
