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Pirate's Booty

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Get ready for a September to remember.

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Therein lies the risk to downside bets, a coordinated agenda that is by design the recipe for a short-squeeze.

While stocks are the world's biggest thermometers, however, credit markets are the backbone. As such, the end game of these agendas is to induce an appetite for credit so corporate America can effectively issue secondary-and in many cases, dilutive-offerings.

Thus far, the litany of conduits, discount windows and auction facilities hasn't been able to do that. While they've kept stock markets afloat, credit spreads remain at levels last seen during Bear Stearns (JPMorgan (JPM)). I expect to see new "inventions" of financial engineering introduced with time.

You can call it socialism, manipulation, intervention or desperation but make no mistake, the mandate is to avoid the unthinkable-a stock market crash that sends an already fragile socioeconomic situation into a downside spiral that sucks the global capital market structure into an abyss.

Yes, it's scary but pretending it doesn't exist won't make it go away.

A microcosm of this looming dynamic will be the surge in September credit issuance.

It's critical-and I mean critical in the most profound possible way-that this debt to be absorbed by the marketplace or there will be a line outside the treasury longer than the Million Man March.

Risk appetites and social mood shape financial markets and the reaction to this September supply will reverberate around the world.

Lucidity is Your Friend

Minyanville has monitored these cumulative imbalances since 2006 and discussed The Writing on the Wall last summer.

To be sure, the credit crisis has already infected the economy, starting with the homebuilders, spreading to the financials, engulfing financials in drag such as General Electric (GE), General Motors (GM) and Ford (F) and will eventually phase through retail, technology, credit card companies and commodities.

That's the orderly scenario, a stair-step through industries until debt is destroyed and a more sustainable economic foundation takes root. It's akin to credit cancer and once it spreads through our entire financial body, we'll be in a position to enjoy the globalization-themed "outside-in" recovery that awaits.

The other option 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.

Neither of these options is something one would wish for but hope has never been a viable investment thesis. Indeed, my stylistic approach has always been to sell hope and buy despair.

By some measures, the gloom and doom is palpable. Through a short-term trading lens, that could prove bullish, particularly if credit markets improve.

Through a big-picture secular lens, however, denial is prevalent as most market prognosticators believe the worst is behind us. Heck, there are still debates about whether or not we'll enter recession and that, in and of itself, is disturbing.

As the owner of a small business and someone who shares your journey through life, it's my sincere wish that we'll navigate these complex times and look back at this column as the turning point of a multi-year, economic expansion that benefits us all.

Until we're able to view that process with the benefit of hindsight and a dose of humility, capital preservation, debt reduction and financial literacy remain core tenets of my particular approach.

May peace be with you.

R.P.
No positions in stocks mentioned.
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