Five Things You Need to Know About the Markets
With struggling economies in Europe and global tensions at a high, making money won't be easy.
There is a ton of information battling for our collective mindshare. From global debt contagion to evolving war stories to double-dip concerns to violation of key technical levels, we awake each day in a fresh episode of the world's wildest reality show.
In the interest of compartmentalizing the crosscurrents and an eye towards assimilation, I offer five items -- some of which you know, others of which are new -- as food for thought as we digest this historic stretch for global markets.
Social Mood Matters
Socioeconomics is the study of how the shifting economy or fluctuations in the stock market shape our perceptions and choices. Conversely, socionomics studies how social mood alters our economic reality and impacts financial markets, political preferences, and other daily decisions.
Robert Prechter is a pioneer in the latter field and makes the case that human beings shape their surroundings rather than react to them. His groundbreaking work was the inspiration behind one of my favorite columns written this year, The Short Sale of American Icons.
As we're apt to say, the greatest misperception in financial market history was that the Crash caused the Great Depression when in reality the roles were reversed. It's a subtle yet important distinction we would be wise to respect.
News last week that Hungary faced a "very grave situation" and Romania "rejected all bids" in a government bond auction roiled global financial markets. As Eastern European dominoes align behind Greece, we must remember they're simply symptoms of a deep-rooted cumulative dynamic.
We've discussed the sovereign sequel to the first phase of our financial crisis and the five stages of grief that include denial, anger, bargaining, sadness, and acceptance. Despite the proposed trillion-dollar "solution" and the unintended consequences thereof, the fatal flaw of financial regulation is that it's a political process while markets move in real-time. (See: A Five-Step Guide to Contagion.
The Road to Redemption
Sometimes folks ask why I repeatedly draw the distinction between drugs that mask the symptoms and medicine that cures the disease. My response is that as long as policymakers continue to pump our free-market veins full of synthetic adrenalin, the hangover will be profound when the inevitable prognosis plays through.
You know the drill: We either continue upon our current course and hope debt-induced largess morphs into legitimate economic growth -- the plan that's been in place for over a decade -- or we swallow the bitter pill of asset class deflation and debt destruction that will ultimately allow for a sustainable economic recovery and outside-in globalization. (See: The Return of the Phantom of Deflation.)
The destination we arrive at pales in comparison to the path we take to get there. Jeff Cooper recently provided a valuable lens with which to view potential next steps.
He openly explores whether the March 2009 lows will hold and shares important clues as we together find our way. We pride ourselves on sharing both sides in the 'Ville and now we have, for better or for worse. (See: The Most Important Charts You'll Ever See.)
If I weren't aware of the inherent vulnerability of the financial market construct, I might view these negative dynamics as contrary indicators. As it stands, while I've been dabbling with two-sided exposure, I'm content to trade surgically, define risk, practice discipline over conviction, and and hit for average rather than power.
One might wonder why I'm not "all in" on the short side given my persistent insistence that the cumulative imbalances will come home to roost. Sometimes I wonder the same before remembering that capital preservation is our battle cry; there will be fewer players and compelling opportunities on the other side of this ride once the dust settles.
Financial staying power is more demure than sexy but that's fine by me as we edge through this Age of Austerity. Inherent in the ever-growing War on Capitalism is the realization that there's more than a financial construct at risk, there is the profound human equation, professional livelihoods, and political legacies at stake.
As desperate times call for desperate measures, that raises the specter of game-changing headlines each and every morning. (See: Regulatory Risk Abounds.)
I often remind myself that it could be worse and for an increasing number of people -- and pelicans -- it already is. I'm not post-rationalizing my risk or projecting my approach, I'm simply offering perspective as we together find our way.
If you're reading this column, chances are you're better off than most; you have a computer (or device) and you've taken an active interest in financial empowerment.
More likely than not, you're not wanting for food or water or a roof over your head.
Quite hopefully, you've got someone to hug or talk to or pet when you juggle the other side of the struggle.
Am I making sense? I hope so; a wise woman often reminds me that happiness is a state of mind. Money is great -- don't get me wrong, I like jingle in my jeans as much as the next guy -- but it's a means to an end. I've learned this through experience as my mistakes morphed into lessons that I share with hopes others will have the foresight to avoid. (See: Memoirs of a Minyan.)
Some people get it, others don't and that's alright; sometimes doing less is living more and the passing moments are the most valuable nuggets of life.
As the world's wildest reality show continues, consuming us all, nestled within the probability spectrum is the chance that the recent serving of supply is simply an appetizer for a much meatier meal of malaise.
See both sides, respect the unexpected and remember to enjoy the journey. Tomorrow is promised to nobody and there's no shame in sharing some smiles as we together find our way.
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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