The Declaration of Interdependence
Is this what our founding fathers had in mind?
As we monitor the structural, technical and fundamental underpinnings of the marketplace, the psychological metric holds the key to the entire equation.
Trust, credibility and faith are integral elements of financial stability. Perception is reality. It's not what is; it's what's perceived to be. Social mood and risk appetites shape the tape. These axioms should remain on our radar as we, the people, edge ahead.
In late February and early March when I positioned for a sharp rally, we offered there would be ample after-the-fact affirmation once it arrived. It seemed far-fetched at the time and paradoxically, that's likely why it worked so well.
Fast-forward 38% in the S&P. Performance anxiety kicked in and folks chased reward in lieu of risk management. Why? The tape was higher and as the market is the world's largest thermometer, things were “better,” or so goes conventional wisdom.
That perspective is flawed, in my view, and sets the stage for the next phase of disappointment. While further upside is plausible should the dollar break lower, real risk remains given the cumulative imbalances in our finance based, derivative laced world.
I most certainly respect the price action. If I've learned anything over the course of my career, it’s that the market is never wrong and we're pawns in the greater game. I also understand that the friction between perception and reality is where profitability resides.
We can debate the "what, how and why" until we're blue in the face but time and price are the ultimate arbiters of variant views. I offer that thought with an eye cast towards a growing chasm, with Wall Street and capitalism on one side and Washington, purportedly on behalf of Main Street, on the other.
We recently witnessed the vilification of money managers who didn't let their investors—people they have a fiduciary responsibility to—fall on their swords for the “greater good.” Those who failed to follow the pied piper party line were hung out to dry when our president scolded dissident Chrysler bondholders, setting a dangerous precedent.
It’s not dissimilar to the autumn of 2001 or the spring of 2003, when one was branded unpatriotic if they weren’t bullish on equities following September 11th or the invasion of Iraq. That dynamic is, in many ways, the polar opposite of what our founding fathers had in mind some 233 years ago.
This isn’t about sacrificial lambs in the court of public opinion as much as blurred lines between the balance of powers and freedom of speech that are the hallmarks of this great nation. The foundation of capitalism is seismically shifting and it would be myopic to pretend it doesn't or won't matter.
We watched those seeds begin to sow when research reports triggered lawsuits and brought to bear our First Amendment rights.
We revisited them when martial law was declared for the markets and short sales were banned in the financials.
We monitored moral hazard when our government bought the cancer and sold the car crash as the bailout bonanza begun.
This is a critical crossroads for the United States of America, one that has little to do with the next few percent or the color of our bottom line. It’s about understanding the ramifications of our current course, respecting political risk stateside and abroad and staying true to the foundational construct of our free-market society.
We’ve not yet passed the point of no return. We can still shift towards a legitimate meritocracy where those who proactively prepared themselves and their organizations are rewarded for their efforts and those who transgressed pay the price as debt is destroyed and markets reset.
To this I would ask if not us, who and if not now, when? I, for one, would rather bear this burden rather than pass the residue of societal excess to future generations. It won’t be a pleasant process but the sooner we’re allowed to go through it, the quicker we’ll be able to get through it.
For more on the current state of affairs in the American economy, see Hoofy & Boo's always astute report.
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 firstname.lastname@example.org.
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