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Monday Morning Quarterback: The Great Wonder of the World


Countries around the globe feel the economic hurt.


Slow and steady wins the race. At the current pace of the recent chase, the S&P will find ultimate support in a matter of weeks.

Since September, when we warned of the impending credit crash, the S&P has declined 35%, almost halving the mainstay U.S. average year-over-year. The selling has been relentless as social mood shifts, risk appetites abate, leverage is unwound and debt is destroyed.

If you're feeling financially inadequate, know you're not alone. This year alone, Brazil is down 51%, China is off 67%, India is 58% lower and Canada (-32%), France (-46%), Germany (-49%), Hong Kong (-60%), Italy (-48%), Japan (-53%), South Korea (-50%), Singapore (-54%), Switzerland (-36%) and the U.K. (-42%) are listening to similarly sullen chin music.

Heck, Argentina lost 26% this month (-58% for the year) and Russia (-76%) was forced to close their exchange with hopes of stemming the supply.

And that's just the equity side of the equation. The largest contagion of our lives has now cast an eye toward the currency markets. The Yen is at 13-year high against the dollar (+12% for the month), the Mexican Peso is at a record low, the Brazil real lost a third of its value since August, the South Korea Won is at a ten-year low against the dollar and according to some reports Europe is on the brink of currency crisis meltdown.

Equities, credit, currencies and commodities tied together with upwards of $500 trillion of derivatives woven throughout the world. Welcome to the other side of globalization as isolationism percolates and the Age of Austerity shifts to Self-Preservation. Indeed, as measured by the 90% tumble by the Baltic Dry Index since May, globalization may be the biggest bubble of all-time.

Minyan Peter spoke about the collapse of the Dot.Gov bubble last week and that's worth revisiting as we edge towards the Bush Financial Summit. China seems to be losing patience as well, which bears watching as we edge ahead. To quote an article written in the 'Ville on October 8th:

"I believe we'll soon see a seismic shift in how assets are valued. That could include revaluing the Yuan or crude being denominated in something other than dollars. If that occurs, asset classes from equities to commodities would increase in "value" as the measuring stick used to denominate them declines at an accelerated pace."

Minyans understand that it will take time, price and debt destruction before a sustainable foundation for a legitimate global economic expansion takes root. The upside of the current anger is that, while painful, this process is a healthy and necessary step towards doing just that. In order to get through this, we need to go through this.

Over the last few weeks, we've explored potential paths into year-end journey. The first included a capitulatory intraday low on October 10th at S&P 840 while the other was the bear trap on other side of that trade. This will be tested on today's opening and as technical levels gain importance during times of confusion, we'll be wise to watch the reaction to that particular technical toggle.

Minyanville has banged the drum on capital preservation, debt reduction and financial intelligence for as long as we've been around. The forward-looking caveat is that we'll hop the fence towards hyperinflation, a notion that Executive Editor Kevin Depew eloquently weighed in on in this podcast. You always want to see both sides of every trade, my friends, and now you do.

Please remember that social mood and risk appetite shape financial markets. There wasn't an official recession in 2000-2001 despite 50% losses (or more) in the major averages. As the media continues to debate the merits of a recession, we're left to wrangle whether we'll see a more problematic socioeconomic malaise.

Risk management over reward chasing as we continue to find our way and remember, Minyans, our mission in the rain is to use price to our advantage. With the world on sale at half-price, babies are being tossed out with the bathwater. Keep your eyes open for bargains, play within your means and attempt to let the market work for you.

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