Monday Morning Quarterback: The Mystery of History
Historical precedence need not apply.
John Lennon once said that life is what happens when you're busy making other plans. In trading parlance, life is what happens when we focus on the all-consuming market and the never-ending quest for performance.
While I left a high profile perch in search of meaning years ago -- a quest for some semblance of societal utility in a business traditionally void of it -- my journey rarely deviated from the day-to-day nuances of the financial market machination.
We've seen some astonishing stuff in our time together.
From bipolar strollers through serial bubbles to the moral hazard that evolved in it's wake.
From government manipulation that for years was denied to events that challenged the fabric of our Constitution.
From a financial crisis that almost sank society to perceived solutions that brought us to the brink of class war.
When we used words like "cumulative" and said things like "this time is indeed different," we didn't do it to score points or harness page views.
Indeed, it was of little benefit to our business when we offered that the world's largest financial institutions were insolvent as they traded near all-time highs.
I offer this walk down memory lane as context; as we edge ahead, we must remember that historical precedent need not apply. While fear and greed have jockeyed for mindshare throughout time, we've never before witnessed the magnitude of imbalances or the depth of complexity currently in place. FDR may have only feared "fear itself" but then again, he never knew what a derivative was.
That's not to say it's "guns and butter" time and we should assume the fetal position in the corner; the greatest opportunities are born from the most profound obstacles and a phoenix will arise on the other side of this prolonged period of price discovery.
It will require patience, discipline, humanity, perspective and perseverance.
It will require teamwork, particularly as society turns inward to take care of themselves.
It will require compassion; not in the traditional sense but with newfound empathy and open-mindedness.
And it will require entrepreneurial spirit, community and faith.
There are no crystal balls in this world and tomorrow is promised to nobody. The best we can do is all we can do and we shouldn't have any regrets when we finally arrive at wherever it is we want to be.
All you have is your name and your word.
Honesty trust and respect are the foundational elements of any successful endeavor.
You can trip, but you mustn't fall; and you should always remember that the purpose of the journey is the journey itself.
Some Random Thoughts
Here's what I'm thinking when I'm not internally philosophizing:
- Reaction to news is entirely more important than the news itself. That applied to the ability of the market to rally last March (when headlines were Scary Mary) and it applies as we watch the supply despite "good" news the last few weeks. See the action and hear what the tape is telling you.
- With S&P 1080 now above us, Boo the bear has the option to roll his "buy" stops to the other side of that level. It's nice and tight risk definition and yet another step on this long and windy road.
- I'm "with him" on a slug of my S&P gamma position, which I've been trading with a short bias.
- Will Ahmadinejad announce that Iran has nuclear capabilities on February 11th?
- How will Israel respond?
- Or Ahmad Rashad, for that matter?
- David Stockman, who served as the Director of the Office of Management and Budget under President Ronald Reagan, offers some valuable insight on How Politics Caused Fiscal Disaster.
- "Stated another way, even if TARP saved our financial system from driving off a cliff back in 2008, absent meaningful reform, we are still driving on the same winding mountain road, but this time in a faster car." --TARP Special Inspector Neil Barofsky in his quarterly report submitted to congress.
- Soooo… the crisis hasn't disappeared -- it simply changed shape?
- Lord Turner, chairman of the Financial Services Authority, signaled in Davos that a regulatory crackdown on foreign exchange carry trades -- which he believes serve "no social purpose" -- might be on the horizon.
- While we can debate the merits of the above statement as it relates to free market capitalism, I will remind Minyans that 1) the trade is currently on "in size" and 2) the dollar continues to edge higher and that will eventually trigger an unwind, which has implications for assets classes of all sizes and shapes.
- Will Lloyd Blankfein of Goldman Sachs (GS) take home a $100 million bumper bonus and, if so, wouldn't that effectively scream "GAME ON!" to President Obama and the emerging class war?
- And you wonder why economists have a bad rap?
- Boogie Down Productions definitely didn't get the snaps they deserved.
- "I think you may be missing the most important near-term resistance -- it's the 50-day EMA, which had continually served as support throughout the rally, broken (and retaken) only in November. Currently, it's somewhere between 1109 and 1110, and just below it would be a great place to add to short positions, with a stop at, say, 1111." --Minyan Mark
- In the meat of the heat of the crisis, Minyanville wrote that common stock investors were at the bottom of a very long food chain. The evolving trend of stock compensation, while addressing concerns regarding outsized risk-taking and eye-popping bonuses, will add to that dynamic.
Having read your State of the State of the Union, I have some thoughts I would like to share.
While the economy and jobs are the right place to focus, they are looking at the wrong issues. I own a 30-employee contract manufacturing company with my brothers. We've weathered the storm quite well and very much want to get aggressive about growing our business. However, we are unprepared to speculatively invest in new employees and new equipment. Why? Lack of clarity. While the future is always murky, at this time it seems completely unpredictable. We have no feel for the future strength of our end markets and have no handle on our cost structure moving forward. At this point, we wouldn't be investing we would be gambling.
The main reason for the lack of clarity is government policy: When and how much will taxes increase to address the ridiculous deficits? Will some version of cap and trade go through and push more manufacturing to Mexico and China further decimating domestic supply chains? How much will it cause steel, electricity, chemical, and transportation costs to increase? Will some version of health care reform get passed and how much is it going to increase unit labor costs? Will the administration start pushing protectionist trade policies to protect union interests? Will the dollar increase in value, decrease in value, or find a range around current levels? How will this impact our competitiveness in a global marketplace?
The best thing government could do is provide some clarity on future policy so we can make a rational decision about whether we plow cash flow back into the business or save it for a rainy day. In my opinion, until some of the policy uncertainty is resolved, the economy will not come anywhere close to living up to its potential.
Excellent points that are shared by small business owners around the land. As we navigate the 'Ville through these unusual times, we can relate to your perspective and concerns. I will offer that the ability to lever expenses relative to revenues is an intelligent approach; although I'm conscience that model isn't always applicable.
As you correctly note, and while statistics suggest the economy is improving, the sum of our various parts is very much in flux. The fact that our growth has largely been a function of government influences introduces a fresh set of unintended consequences, although that's a different conversation altogether.
In terms of the government providing clarity, I would draw the analogy to the ever-changing dynamic that almost sunk the Street a year ago. In a fluid world, it's possible that by the time Washington attempts to effect change (say, health care), another dynamic materializes (sovereign solvency, geopolitical risk, jobs) that is entirely more pertinent. In an attempt to do everything, little is accomplished. In other words, the world is changing much faster than policymakers -- or politicians -- can pass proactive regulation.
Just some thoughts and hope this helps; fare ye well my friend.
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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