The Most-Hated Rally of All Time
Why it's never wise to mess with Mother Nature.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Greetings from Minyanville East, where I awoke this morning to find my wife Jamie holding her hand over my heart. "What the heck are you doing?" I asked, as I transitioned from my dream to reality. "Just making sure you're breathing," she said as she removed her hand and went on her way. "You never sleep this late; I was worried."
As I shook out the cobwebs, I realized that the intense pain that plagued me yesterday was gone, replaced with a dull yet persistent soreness. Despite repeated directives from doctors and
warnings wishes from my wife, It was the first time since the surgery that I had slept 10 hours -- and wouldn't you know it, I felt great (all things considered).
Now, I'm not gonna pull a Monday -- that was a mistake driven by desire and perhaps ego. There is nothing to prove, per se; there's no reward if I set a time record in recovering from total hip replacement. I've resigned to "the program," which is the opposite of "no pain, no gain." In hindsight, I somehow underestimated the procedure, but no mas. Day by day, until my bones and muscles properly set.
Why the update? I've been writing in real-time for 13 years, and to be honest, I'm not used to missing long stretches of the flickering ticks. I suppose that's why I pushed myself last (this) week to write from the hospital -- much as I did last year during that nutty heart thing. I will continue to do what I can as I can, with my recovery first and everything else falling into place.
Speaking of everything else, last night while resting in bed, I wrote the following on Twitter: "In my 23 years of trading equities, I don't believe I've ever witnessed this degree of directional certitude before." Now that's saying something, considering the booms and busts I've traded since that fateful day in 1991, when I first sat on the worldwide equity derivative desk at Morgan Stanley (NYSE:MS). Orange County, the Asian Contagion, Y2K, the tech bubble, China bubble, real estate bubble, crude bubble, gold bubble...I can go on.
I'm not saying that equities in and of themselves are in a bubble -- I can't make that assertion after whipping around tech stocks in 2000 -- but I do believe there is a bubble in complacency, and the chasm between perception and reality is massive, much like it was in December 2006. The obvious variable these days is the obscene amount of government intervention, and as there is no historical script for what we're witnessing, any and all discussions must be qualified with an asterisk.
Can it continue? Of course; as discussed yesterday, there is the potential that this is 2003, not 1987 -- and even if it's 1987, the tape has plenty of room to run before a comeuppance arrives (if we're looking at a linear comparison). And there are some who are comparing our current stretch to the blow-off phase in the Nikkei (INDEXNIKKEI:NI225) that popped in 1990. The truth is that nobody knows -- nobody -- and anyone who claims they do is not to be trusted.
Back on point, the folks I read, hear, and watch are uniform in their directional view, albeit for different reasons. Some say this is the most-hated rally of all time, others say that John Q Public hasn't even bought into it yet, while still others belive the Bernanke call -- not to be confused with the Greenspan put -- is delivering a dish that is best served cold, with painful memories of 2008 providing the spice.
They may be right -- it sure feels like they're right -- but I'm reminded of something we learned in September 2008: "The rising tide will lift all boats in front of a perfect storm that awaits. It may have been pushed out on the horizon, but it's there. And now it's really mad."
What might serve as a downside catalyst in an environment that feels like no matter what happens, the tape will digest the news and gallop higher? It might be a black swan -- Germany deciding that the euro is no longer in its best interest, a geopolitical event in the Middle East, or something pernicious within our borders -- although those are by definition low-probability events, or it might be less dramatic, be it gravity or exhaustion, or maybe even something entirely obvious, like the government withdrawing it's stimulative needle.
One thing for certain, while prudent risk management isn't about guessing, it most certainly entails risk definition and steady acumen. In an frenetic world, those who are able to remove emotion from their process are already a step ahead of the game.
Good luck today, and remember to take your journey one stair-step at a time.
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