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Random Thoughts: Why This Time IS Different


Adapt, but don't conform.

I was standing on a street divider this morning, waiting for a break in the traffic as I made my way to Minyanville headquarters after my workout, next to an older lady whom I've never met. After a minute or so of awkward silence, I turned to her and said, "Who would have ever thought that WE would be stranded on an island together?" We shared a smile and some laughter, which was my intent; in today's day and age, a little levity goes a long way.

Why do I bring this up? For starters, it was the first thing that came to mind as I sat down to scribe my vibe on the global financial markets. After more than a decade of writing-and twice that trading-my systematic routine has almost become second nature, and therein lies the risk. While I'm a SIZE seller of "this time is different," I think we can agree we're in uncharted territory as far as our financial landscape is concerned.

There are only so many times I can reference the article we wrote in December 2011 that pointed toward S&P 1360 (which, at the time, was pretty much unthinkable). You know-or I hope you know-the binary (and cumulative) risk that dominates our new-found reality. We've been all over Europe for two years, long before policymakers saturated our patience by changing the rules of engagement, and potentially the foundation of capitalism.

Sure, there's a lot going on-but when you write about it all day, every day, it's difficult to maintain a fresh and engaging voice. That's why I like to mix it up, thread pop culture references throughout the prose, and add as much "PG-13" humor as possible without detracting from the credibility of the content. And yes, sometimes I vent -- it happens to the best of us, at least those of us who aren't black boxes.

Someone once told me never to chase "paper dragons"; it was their way of saying that I should focus on known tangibles and leave amorphous speculation to others. I find that particularly interesting as it relates to our current challenge of discounting future probabilities of events that may or may not have been invented yet, whose outcomes are so disparate that it's almost impossible to make an educated decision.

Take Greece; 50% debt haircut, you say? No no, it's "voluntary," so not to trigger a "default" event as it pertains to paying off the credit default swaps. And that's just the first domino; one of the reasons that Greece is so very important is that it will set the precedent for the troubled countries that are waiting in the wings, and make no mistake, that line is quite long.

But here's the rub-here's the thing that keeps me up at night. We, at Minyanville, maintained for YEARS that debt destruction was an inevitable medicine that we must take, as opposed to the steady stream of synthetic stimuli that the government has been injecting in the capital market veins. And if this bitter pill is, in fact, swallowed by Greek bondholders, then won't that approach matriculate through the rest of the sovereign sequence? And IF (big if) that course is navigated without infecting the rest of the financial food chain, wouldn't that, in fact, be bullish?

For all of the unknowns, I am confident that we've passed through The Eye of the Financial Storm. What remains unknown is what The Second Side of the Storm looks like, and how it will manifest through time and price. It seems far-fetched that we've seen the worst of it, not when we continue to push our obligations to future generations. But as we like to say in the 'Ville, the destination we arrive at pales in comparison to the path we take to get there. And I suppose that's why we come to work each day, to fit the pieces together.

In terms of the "path," I respect the price action, as well as the reaction to news, but I'm becoming incrementally less bullish, and indeed more bearish, as we approach our aforementioned price target of S&P 1360. The most vicious rallies occur in the context of a bear market and that could prove true once again. While I "see" the incremental improvement in the stateside economy-and the labor up-tick in the tech sector-a dark cloud will remain on the horizon until such time that we digest the imbalances and address the rot caused by a generation that long lived beyond its means.

In short, enjoy the ride but don't be blinded by the light. Manage risk (rather than chase reward), sync your time horizon with your exposure, and balance the flickering ticks with the journey of life, for that latter matter is by far the best bet on the board.

Random Thoughts
  • If you haven't already seen our new Buy & Hedge ETF Strategies section, give it a look. It will be great for those who want to dig deeper into the world of trading, investing and hedging using ETFs. Jay and Wayne are two smart cookies.
  • The S&P ticked at 1300 (OK, 1300.49) yesterday and bounced in kind. It is notable, however, that the BKX is back below its 200-day moving average, and the forward direction of the financials will tell the tale for the broader tape. BKX 40 remains THE line in the sand, if and when.
  • As discussed above, the reaction to the cacophony of news has thus far been muted (which is bullish on the margin) but while we must respect the price action, we must never defer to it.
  • The next iteration of the four horsemen, of course, will be Google (GOOG), Apple (AAPL), Amazon (AMZN) and Facebook.
  • I almost bought back some Research in Motion (RIMM) while I was away last week (at $15 and change), but after losing my signal four or five times during the transaction attempt, I took that as I sign that I would be better served to wait until I was stateside. No wouldas, couldas or shouldas, just sharing where my head is at as we together find our way.

Twitter: @todd_harrison

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