Todd Harrison: The 2013 Stock Market Seems Like Old Times
The more things change, the more they stay the same.
"The definition of insanity is doing the same thing over and over and expecting different results." -Attributed to Albert Einstein
I wrote Seems Like Old Times in May 2007. It was an effort to draw attention to elements nestled within our socio-economic sphere that spooked me, and share them in a way that would educate, but not scare, our readers. If we’ve learned anything through the years, it’s that people don’t like to be interrupted when they’re busy making money, particularly to be told that the music may be coming to an end.
I revised that column three years later, after the financial crisis arrived like a clap of thunder, and while we were in the nascent stages of the rally that drove risk assets to fresh all-time highs. It’s been some journey, sharing insights in real-time these last 14 years, and with all due respect to the Chinese, these haven’t just been interesting times; they've been extraordinary.
Here we are, three years later -- six years after the original scribes were vibed -- and anyone who isn’t a rootin'-tootin' bull clearly “doesn’t get” the new paradigm that is the system formerly known as capitalism. Orange may be the new black on Netflix (NASDAQ:NFLX), but flat is the new short on Wall Street. That’s been the winning play in 2013, but as we turn the corner into a new year, investors may look to change the channel.
Having traded 23 years -- through Orange County derivative disasters, Asian contagions, new paradigms, and fortunes that were lost and found many times over -- I’ve had runs when I could see the seams on a twisting curveball and withstood stretches when I couldn’t hit the side of a barn. Yes, I’ve chewed through many tapes in my time, some rather well and others I prefer to forget.
While history doesn’t always repeat, it often rhymes, or so says the familiar saw. In that spirit, I will revisit the observations first shared six years ago -- and again three years ago -- in an effort to help untangle the confluence of crosscurrents vying for our collective attention on a daily basis.
In no particular order:
- In 2007, globalization was the justification for growth. In 2010, the seeds of isolationism were sewn. In 2013, you either have or you have not.
- In 2007, there was margin debt. In 2010, there was cumulative credit. In 2013, there are bitcoins.
- In 2007, folks flipped condos. In 2010, underwater mortgages preceded strategic defaults. In 2013, Wall Street is the single largest buyer of distressed real estate.
- In 2007, politicians targeted corporate America. In 2010, they took aim at lending practices. In 2013, they find themselves in the crosshairs of a frustrated society.
- In 2007, we had the Greenspan put. In 2010, we had the Bernanke helicopter. In 2013, we’ve got the central bank steamroller.
- In 2007, supply and demand shaped the tape. In 2010, a Financial Accounting Standards Board (FASB) could sink the system. In 2013, a single Twitter (NYSE:TWTR) headline moves markets and make millions.
- In 2007, corporate malfeasance was the root of rage. In 2010, hedge funds were perceived to be an acceptable casualty of war. In 2013, the stock market is the place to be -- as long as you don’t tell anyone that you work on Wall Street.
- In 2007, we had venture capitalism and private equity. In 2010, we had an alphabet soup of government-sponsored acronyms. In 2013, robots make billion-dollar decisions in nanoseconds.
- In 2007, we rationalized dot-com valuations. In 2010, we rationalized debt levels and pushed the bar tab to our children. In 2013, we rationalize the role of the Federal Reverse in an attempt to believe it has provided medicine to cure the disease rather than drugs that mask the symptoms.
- In 2007, the FOMC walked a tightrope. In 2010, it fitted the noose. In 2013, the noose was fashioned as a necktie.
- In 2007, the bears were scared. In 2010, they were hibernating. In 2013, they’re dead.
- In 2007, we had a financed-based economy. In 2010, we had a finance-dependent economy. In 2013, we’ve got ourselves an addict.
- In 2007, many looked for a better job. In 2010, almost one in five was underemployed. In 2013, we don’t know what’s going on because the BLS manipulates the data.
- In 2007, there was a fear of missing. In 2010, there is just plain fear. In 2013, we have both.
The irony of our current quest is that those who preserved capital and saved for their future were punished by the unintended consequences of fiscal and monetary policy; investors got burned at the top, savers got slammed at the bottom. The stock market, once a proxy of innovation, morphed into a matter of national security. In the process, we lost more than our innocence; we lost our way.
Yes, the more things change, the more they stay the same. But this time, as the battle lines are drawn and patience wears thin, the stakes are entirely higher. A wise man once said that trading, in the most basic form, is an attempt to capture the disconnect between perception and reality. That will prove true once more; the question, for a society hinging on that chasm, is how the dust settles once it does.
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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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