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Tuesday Morning Quarterback: The Two-Minute Warning!


The financial crisis, much like the Great Depression, will be an era rather than an event.


"We're gettin' up a football game against the guards. Wondered if maybe you and some of your buddies here would like to join in on the fun." -- Paul Crewe, The Longest Yard

It's that time of year again. The weather has a crisp nip to it, leaves are quickly shifting and the Raiders are my primary source of Sunday frustration. Yes, in the blink of an eye, 2010 is in our sights and Wall Street has begun eyeing the measuring sticks.

I've traded almost 20 years through my fair share of hope and despair. The Orange County derivative scare, an Asian contagion, the rise and fall of Long Term Capital Management, Y2K, implosions, housing manias, China syndromes, commodity oddities, private equity euphoria, debt debacles and cumulative comeuppances were some of the passing paradigms, to name a few.

Every dynamic was front-page news and each one of them passed, paving the way to the next best rage. The takeaway, I suppose, was the constant continuum of denial, migration and panic as it migrated through the mainstream mindset and human nature weighed the collective perception while markets discounted a future reality.

I offer this stroll down memory lane as 2009 encapsulates that pendulum of fear and greed. Never before have I witnessed such a rapid shift in a short span as risk management morphed to reward chasing and prudence got punked in favor of blind ambition. I'm not passing judgment; I'll leave that to the ultimate arbiters of our financial fate, time and price.

We've touched on various topics over the last few weeks. The uniformity of the consensus view, the potential for an echo-bubble, investors being forced to take risk and the notion that money can indeed vanish were amongst them and each offers important lessons as we continue to educate ourselves and prepare for the future.

To be clear, fair and completely consistent, we're often early in the 'Ville and these dynamics may not matter with fund managers chasing performance in a race to get paid. That might manifest into quarter-end (tomorrow) and it could continue as year-end crawls into the collective consciousness. A smart man once said that you can pick the direction or nail the timing but you'll rarely game both.

What I will share as perhaps my most lucid thought-right up there with "buy energy and metals, short tech and financials and go to a beach in Costa Rica for five years" that we offered in 2003-is that we're witnessing a cyclical bull nestled within a secular bear, and one that promises to be the grizzliest stretch in many generations. The financial crisis, much like the Great Depression, will be an era rather than an event.

You can run from reality through massive government intervention but you can't hide from the fact that nobody is bigger than the market, at least for a sustainable period of time. As traders, the destination we arrive at pales in comparison to the path we take to get there and we'll continue to offer our eyes in that regard. I'll simply urge Minyans to see all sides, allow for an ample margin of error and save some pay for a rainy day.

If our greatest cost is that of opportunity-at least on a chunk of our change-we will look back at this stretch with a knowing sense of familiarity and a competitive advantage with which to operate. Proper preparedness, in terms of expectations and execution, will serve us in extremely good stead.

Good luck, and think positive; profitability begins within.

Random Thoughts:

  • What is it they say about social mood and risk appetites shaping financial markets?

  • I'm always early, right?

  • It's been our contention that we've flipped the switch from an immediate gratification mindset to an Age of Austerity. While a snapshot of the last six months flies in the face of that thesis, seismic shifts in social mood arrives in waves. Mohammed E-Erian, the co-chief investment officer of PIMCO, offers some salient thoughts along those lines.

  • I don't understand why Don Draper strays; Betty has got it going on.

  • Meanwhile, sticking with the escapism theme, Californication premiered Sunday night and locked its spot as the best show on television.

  • We asked on Friday if "Sell Rosh Hashanah and Buy Yom Kippur" would again prove true and indeed it has, at least for a day. Given the thin ranks yesterday, quarter-end upon us and the potential for inflows to start Q4, we must remain vigilant in seeing both sides as we edge ahead.

  • I continue to "trade around" December puts-gamma is my friend in this environment-while respecting the continued traction in the credit markets.

  • The Waldorf is one block from MVHQ, lest you wondered what a police state might actually feel like.

  • On the upside, I was court side for the game of the decade and as an added sweetener, Syracuse stole the show.

  • As Mr. Kangas so eloquently noted, the trick to the trade is letting your winners run while cutting your losers. Trailing stops do just that (but won't protect against overnight gap risk).

  • From those savvy seers at the CitiFX Technical Group last week, "Despite the fact that equities are down very marginally both today and this week both the VIX and the VXO have moved to levels which if sustained to the close would provide a bullish weekly reversal at the absolute low of the move down from the October 2008 peak."

  • The meaning of life is a life of meaning.

  • Let your first sale be your worst sale, Let the sun shine and Let it be.

  • Given the Art Carnage in Research in Motion (RIMM) of late, the relative strength in Amazon (AMZN), Apple (AAPL), Google (GOOG) and Baidu (BIDU) have been impressive. I would be careful with these names, however, as they're the poster children for window dressing and that typically abates in the sessions prior to quarter-end.

  • Keep a peak on the greenback, which is quietly up 2% in the last week. I liked our "asset class deflation vs. dollar devaluation" vibe better when it was "our little secret" (since 2003) but just because mainstream media picked it up doesn't mean the dynamic has dramatically shifted.

  • The world would be a better place if honesty, trust and respect were accepted as foundational constructs of any endeavor, be it love, business or life.

  • I suppose the trillion-dollar question is: Where is John Q. Public on the denial, migration and panic continuum?

  • On the upside? I quit smoking. The other upside? 15 pounds. All in all, it's a great trade, but it'll feel much better after some internal downsizing.

  • Mr. Practical hit the nail on the head as to why all roads lead to deflation. That, coupled with the four 50% rallies in the Nikkei since 1990-and current levels now 74% lower-are food for thought for the blind faith believers (which is different than saying we can't continue higher).

And, A Few Housekeeping Items While I Have You…

  • I'll be southbound Thursday afternoon for some Florida meetings and to spend some time with the savvy soothsayer Jeff Saut. Seeing old friends is good for the soul.

  • The week of October 12th will be a wickedly wild road trip-six cities in five days-as the critters hit the road and spread the good word.

  • MVHQ will be at BB Kings in force on October 22 to support the kid's Right to Rock. All ye faithful are welcome to attend to boogie with the big man, Clarence Clemons.

  • When I tell ya the boy has got his own money, I mean the boy has got his own MONEY! Minyanville has launched an effort to turn your buck into a Benji. Input the serial number on your dollar bill into this page and you could quickly realize a 10,000% return!

  • And of course, Friday December 4th will be our annual Festivus to support The Ruby Peck Foundation for Children's Education. As the last three holiday events have been sold out, feel free to lock your spot!

  • If your firm has an interest in sponsoring Festivus, commingling your holiday party with ours and aligning with Minyanville for this most worthy cause, please contact me directly. Giving back is a core construct of our mission and we look forward to sharing the journey with you.

  • Gotta hop. You can find me on The Buzz all day.


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