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Will the Consensus Be Right?


All we have is our name and our word.


"Hi, welcome to the future. San Dimas, California, 2688. And I'm telling you it's great here. The air is clean, the water's clean, even the dirt, it's clean. Bowling averages are way up; mini-golf scores are way down. And we have more excellent water slides than any other planet we communicate with." --Bill & Ted's Excellent Adventure

I long ago learned if you don't stay humble, the market would do it for you. I found that out the hard way in 2003, a story I've told before and will elaborate on in next week's Memoirs. As I try to use experience to my advantage, I've reminded myself we're all just pawns in this game and discipline must always trump conviction.

We see both sides in the 'Ville and demonstrate that with the variety of insights and opinions offered throughout our community. We've weighed the specters of inflation vs. deflation and asked whether another bubble or deep trouble is on the horizon. We respect the strength in credit and know the S&P can continue to 1120 without violating the bearish trend-line.

We've used the analogy that American Home Mortgage was the pebble in the pond that started the tsunami and the government-in response to the crisis, rather than proactively anticipating it-rolled boulder after boulder into the water until they turned the tide.

They bought the cancer and sold the car crash.

With upwards of $500 trillion in underlying derivatives tying our finance-based economy together, the dominoes laced with dynamite exploded the other way, tacking 59% on to the MSCI World Index since the March lows. We were pretty bulled up in the 'Ville in late February when blood was on the street but-and I'll only speak for myself-I'm decidedly more cautious as we again climb the slippery slope.

Let's think about this for a moment. In the last week, we've seen pundits, presidents, policymakers, oracles, corporate chieftains and hedge fund honchos endorse this rally.

Bernanke? The recession is over.

Geithner? The financial industry is on the mend.

Obama? He's pushed most of his political chips on the table.

Barton Biggs? There's another 20% to the upside this year.

Buffett? Buying stocks and "getting a lot for his money."

Pandit? There is "little doubt" that Citigroup (C) will return to profitability?

Cramer? It's the "Greatest bull market in history" and "different this time" (not to be confused with the last new paradigm).

On Tuesday, one year after the failure of Lehman Brothers, we asked ourselves what we learned from the financial crisis? The answer, so it seems, is "not very much."

Fear turned to greed, risk-management morphed to reward-chasing and seeds of disconnect are being sowed, perhaps setting the stage for an all-out class war. Seriously, when the average Goldman Sachs (GS) employee could take home $773,000 and many Americans can't afford health-care, would you really be that surprised?

I was schooled to believe in business cycles and am of the view that this crisis first birthed when recession became anathema and we weren't allowed to take our medicine on the back of the technology bubble, choosing instead to take drugs that masked the symptoms. This nine year recession was masked by the lower dollar and skewed by the spending habits of a slimming margin of society but alas, I digress.

Yes, I see both sides and respect the potential for a currency shock (potentially paving the way to higher asset classes) if foreign holders of dollar denominated assets can figure out a way to extricate themselves from our 3-D dilemma (debt, derivatives, dollar) without committing the financial equivalent of hari-kari.

My point-and there is one-is that the government is "all in," attempting to push risk out on the time continuum, and a plenitude of people in positions of power have slapped their stamp of approval on this tape 59% after the fact.

I'm reminded of a column I wrote August 22nd, 2007 called "The Credit Card" that offered "all you have is your name and your word" and credit of a different breed, that of credibility, was emerging as the issue at hand for the markets at large. And I quote:

Now, I'm not smart enough to know when this will happen and I'm certainly respectful of the fact that a cornered animal will bite, scratch, claw-and potentially kill-to ensure survival.

Those animal spirits have laid many bears to rest over the years and, to be honest, I'm unsure if the downside disconnect has now become a tad too obvious.

Psychology, as with the markets, moves in cycles of denial, migration and panic.

One thing is for sure, however. If and when the wheels wobble off the global financial wagon, the warning signs will be obvious with the benefit of hindsight.

Unfortunately-or fortunately, depending on your preparedness-the crimson dye will already be cast.

Welcome to the finance-based, debt-dependent, oh-my-goodness mindset, where the only true preparation is legitimate financial education.

When I opened up my New York Times this morning and saw a special section dedicated to "Taking A Chance on Risk, Again," it was clear that the more things change, the more they stay the same. With everyone seemingly on the same side, with uniformity in the view that the worst is behind us, I can't help wonder if the next phase of this crisis will be one of confidence.

A smart man once said you can pick the direction or nail the timing but rarely game both. I don't profess to know when that tipping point arrives but I do know that if we don't learn from the past, we're destined to repeat it. As Minyans, please remember that financial staying power will be our ticket on the other side of this wild ride.

May peace be with you.


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Position in s&p and gs

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

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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