Checking in on the Class Clown
The social mood evolution is upon us.
The European dog has wagged our tail during this sovereign sequel to the first phase of our financial crisis.
It is, in many ways, the mirror image or the 2008 financial scrimmage.
The pebble causing ripples across the pond?
Euro-Bonds, also known as Germany V. Other.
Closer to home, it’s Red, Blue, Blah... with a massive opportunity evolving.
I shared some vibes on social mood in 2006 that suddenly seem apropos. At the risk of being the guy who quotes himself -- yes, I'm aware and no, I don't like it -- the dynamic is cumulative, as most elements of our financial condition are.
To that end, some thoughts on the landscape, as first shared in the summer of 2006:
We've spent countless hours chewing through the fundamental backdrop, technical landscape, structural underpinnings, and psychological crosscurrents. We apply our craft each day with great pride and determined enthusiasm, challenging ourselves to climb an endless ladder of financial acumen.
But this column isn't about the next best trade or the contextual implications of a secular shift, it's about our societal state and simple coexistence as we subtly shift into a new era of American lifestyle. It's easy to ignore this evolution while staring at our screens, but a step outside our comfort zone -- and a step into the world around us -- unveils a disturbing yet unavoidable truth.
The 2004 election brought the dichotomy between blue states and red states to the forefront of the mainstream mindset, but a more disturbing conundrum has evolved that had little to do with party lines or political affiliations.
As we edge through the post-bubble world, the growing chasm between the “haves” and “have not’s” has become readily apparent. Indeed, while the names have changed to protect the affluent, the middle class has quietly eroded to forge a wedge between the lifestyles of the rich and a struggle to exist. Welcome to Serf City, USA, a place where we're entirely more comfortable not discussing the rigors of everyday life or the struggles that so many currently endure.
Those of us who grew up on Wall Street wore CAPITALISM across our chest like a badge of honor. Meritocracy and intellectual agility differentiated our existence and afforded us status in a white shoe world. The dot.com frenzy bridged those Benjamin’s to the digital age, and migrated wealth to Silicon Valley and beyond.
Once that ship sailed, fiscal and monetary agendas were implemented to prolong the modern day Jazz Age with hopes of avoiding the other side of that joyous ride. And in what many believe was the last hurrah at the Bubble Spa, home equity became the enabler of paper trades and happy trails. Yes, for some, life, or the perception thereof, has been very good indeed.
Meanwhile, on the other side of the tracks, a different breed of reality has emerged. Wage growth is stagnant, energy costs are on the rise, education expenses are escalating and our once proud manufacturing sector has been outsourced abroad.
When the going gets tough, as the counter-parties of our government obligations have recently shown us, the tough tend to take care of themselves. That manifestation wears many faces, be it nationalization of natural resources or a debasement of the dollar as the world currency reserve. We can pretend it doesn't exist but denial has never been a viable investment strategy.
As we digest the ramifications of eminent domain, understand the motivation of the bankruptcy laws and accept that social security and pension programs are inherently flawed, the growing societal chasm has become increasingly apparent.
Indeed, almost 40% of all US wealth is in the hands of the top 1% of the population, compared to 13% 25 years ago. As this dichotomy manifests, the implications for consumer spending, real-estate investment and long-term savings will be profoundly impacted. We've discussed the "dollar devaluation vs. asset class deflation" thesis for quite some time but it will become entirely more meaningful when words become reality and these dynamics arrive at our front door.
I often opine that the stock market is the world’s largest thermometer and the truest reflection of our collective health. The good doctors at our central bank know this, of course, and have taken great strides to supplement our organic ecosystem with artificial stimuli.
The imbalances have been building under a seemingly calm surface but they’re starting to percolate in the socioeconomic arena. This will have profound implications in a delicate global balance and will continue the seismic shift until it reaches critical mass deemed to “matter” by the financial markets and those absorbed by them.
What can we do?
- Be aware and alert of the evolution that surrounds us rather than hope that it will quietly dissipate.
- Save when we can and stay out of debt, particularly as it pertains to the adjustable rate mortgages that our former Fed deity so readily proclaimed to be a solution.
- Diversify holdings and explore alternative currency vehicles, understanding that cash may be king but our kingdom itself is shrinking.
- Know that capital preservation is the first step towards prolonged profitability and understand that it will be a long, hard road.
- And be mindful of our blessings rather than stressing about petty differences or unnecessary acrimony. These words may sound trite, but society is simply the sum of its parts.
If I've learned anything during my short time on earth, it's that net worth and self-worth aren't mutually exclusive endeavors. I hope that I'm mistaken about what I foresee to be the inevitable consequences of our societal addictions as we all stand to benefit from a rising tide.
Wisdom has taught me that I know very little and perhaps my trepidation will serve as the grist of sustainable economic success. I will simply ask that you see all sides of the probability spectrum and take steps to ensure that you're in a position to sell hope and buy despair.
For if the chasm between perception and reality closes, opportunities will abound for those in a position to capture them.
I will end this column by repeating an oft-mentioned mantra; we gotta go through it to get through it. We're going through it now and that's one step closer to where we want -- and need -- to be. That, on the margin, is constructive.
This is not the time to beat yourself up or wallow in the why.
It's time to look within, summon strength and seize opportunity; for mark my words, this too shall pass.
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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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