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Monday Morning Quarterback: The Song Remains the Same


Some deja vu of when bulls reigned and bears were disdained


And its whispered that soon if we all call the tune
Then the piper will lead us to reason.
And a new day will dawn for those who stand long
And the forests will echo with laughter.
- Led Zeppelin (Stairway to Heaven)

The dog days of summer have arrived and it feels like just another August. The heat is stifling and oppressive, the Yanks and Sox are battling in Boston and families are trying to steal some time before autumn arrives across the land.

In some ways, this stretch is reminiscent of 2007 when bulls reigned and bears were disdained. As the market tickled all-time highs, reward chasing trumped risk-management as people pined for bigger, better things and tried to keep up with the Dow Joneses.

Through another lens, this is akin to 2008, when a lurking reality battled for mainstream mind share as investors confused optimism and bullishness. "The worst is behind us," was a common theme, one I remember as I discussed the issues that laid in wait with folks who insisted that too, would pass.

One could argue they were right; others will say they'll again be very wrong.

The always sage Minyan Peter shared some thoughts that bear repeating, a dose of reality if you will; an objective opinion meant to provoke thought, when he said:

"I strongly encourage Minyans to read the complete text to Chairman Bernanke's speech last Friday as I think it gives an excellent perspective on the all the different 'events' from the past year. But I would draw your particular attention to the following quote:

"[A year ago] there was little to suggest that market participants saw the financial situation as about to take a sharp turn for the worse. For example, although indicators of default risk such as interest rate spreads and quotes on credit default swaps remained well above historical norms, most such measures had declined from earlier peaks, in some cases by substantial amounts."

"With pundit after pundit declaring the worst behind us, it all feels eerily familiar. As last summer clearly showed, markets anticipate until they don't."

I touch on this for a few reasons, the first of which is that there are no pundits. Outright advice through media outlets is impossible, as they-we-don't know the unique risk profile and time horizon of the audience. While Minyanville prides itself on the integrity of our ideas, large and small, as food for thought, financial responsibility isn't a sound bite or lightening round; it's a lifelong mission that requires proactive thought, steadfast discipline and prolonged patience.

Second and perhaps more pertinent, is that the definition of insanity is doing the same thing over and over again expecting a different result. We have been here before and the script should be familiar to thy faithful. From the Nikkei to the NASDAQ to housing to China, bubbles have been a common thread and they always end the same.

Click to enlarge

This particular point isn't about the next best trade or the following five percent; it's more, how shall we say, profound.

We've spoken about the potential for yet another debt bubble that could manifest through the injection of stimulative steroids intended to mask the symptoms rather than the administration of medicine-time, price and debt destruction-necessary to cure the underlying disease.

We said it often and we'll say it again: There's a massive difference between legitimate economic expansion and debt-induced largesse.

What's the difference between zero-percent financing and cash for clunkers or appliances? In a word: Semantics.

Until the end-demand, rather than cost cutting initiatives or nudges from the government, drives consumer behavior, smoke and mirrors-along with truth and trust-will remain valuable commodities in our derivative laced, financed based global economy.

Until such time, as we witness headlines like "CIT Debt Sold to Widows has Fine Print PIMCO Resists," "Bank Bail-Outs Weigh on Some States," and "In Hard Times, Tent Cities Rise Across the Country," I can't wonder when the cumulative straws on the camels back of collective psychology will finally give way to the weight of an unsure world.

If society is indeed the sum of the parts, how long will those parts fit together in a cohesive and harmonious societal spectrum?

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