Todd Harrison: Ten Themes for 2013
Financial observations from the front.
Welcome to the Grand illusion, come on in and see what's happening; pay the price, get your tickets for the show.
It's January and you know what that means; NFL play-offs are in full gear, corporate plans are being implemented, and we're seeing prognostications and predictions from anyone with online access and thoughts to share.
We've tossed our hat in the ring through the years-2005, 2006, 2007, 2008, 2009, 2010, 2011-and last week, we reflected on our Ten Themes for 2012. As you might expect, some were spot on, some missed the mark entirely, and others proved prescient, albeit early.
While I'm not a fan of punditry-I'm a firm believer in provoking thought and providing insight to empower individuals to make better and more informed financial decisions-I will again enter the fray with some forward-looking observations.
In no particular order:
The Austerity Shoe: While the world exhaled on the avoidance of the fiscal cliff-it was more of a speed bump-a conditioned complacency (to bad news) has emerged. While the bulls will correctly argue that reaction to news is more important than the news itself, the "other side" of the so-called Grand Solution has yet to emerge. There are two solutions to our debt and deficit crevasses-higher taxes and austerity measures, neither of which are pro-growth; the second shoe has yet to fall.
The Other Side of the Safety Trade: The reach for yield becomes the bond bug's windshield; when the world's most crowded trade begins to unwind, it will be akin to an elephant trying to squeeze through a mouse hole. While conventional wisdom dictates that money will rotate into equities, the greatest trick the devil ever pulled was convincing the world that deflation doesn't exist. Remember, deflation in a fractional reserve banking system means that policymakers have lost control of the economy. It's an admission of defeat, albeit one that may prove to be unavoidable.
Full Tilt: Following The Grand Experiment, the notion of a "system reset" continues to lurk in the dark corners of my crowded keppe. The fly in this potential theme is that corporate credit-saved when risk was transferred to the public-suggests another three to four years of stock market buoyancy before that comeuppance arrives, all else being equal. The multi-trillion-dollar question, of course, is whether that's possible in a world of growing social, status, and income inequality.
The Grand Illusion: The question remains, as touched on above, whether exposure rotates into equities or dissipates entirely as appetites abate and an already-scared public-burned by bubbles and busts that burned investors at the top and screwed savers at the bottom-remains uninvolved and apathetic. If we see an equity melt-up-I don't foresee it but it is within the forward probability spectrum-this theme will win by a landslide as the chasm between perception and reality (and the difference between a stock market rally and an economic recovery) widens to Grand Canyon proportions.
Engine Room, More Steam!: As global central banks shovel more coal into the furnaces of the financial machination, the cumulative pressures on The System Formerly Known as Capitalism will blow a gasket; that could manifest through social mood (consistent with our current course), a seismic currency shift (triggered by massive protectionism and isolationism, perhaps emanating from China), or something outside of our current realm of thought.
Cyber-Rider: Minyanville has written extensively about an unspoken war that has been in play for a few years; namely cyber-warfare, which would be consistent with our "tricky trifecta" of societal acrimony (check), social unrest (check), and geopolitical conflict. Look for this to continue-and in some cases, for the cyber-warfare to succeed, in 2013. I will profess that I may have an edge here as I'm privy to information that these attacks were launched-and thus far successfully thwarted-in the latter half of 2012.
Inflation in Things We Need, Inaction From Those Who Lead, and Deflation in Things We Want: I'm repurposing a longstanding Minyanville theme that has played out in spades. Things we need-energy, health care and education-will continue to cost more while things we want-cell phones, laptops and plasmas-become increasingly commoditized as a function of the most deflationary invention of all-time, the Internet. The latter matter is great if you're a consumer, but not so much if you're a provider of those goods and margins continue to squeeze.
Information Deflation: I wrote an article last week regarding the crosscurrents in the media sphere and I believe this will emerge as a major theme in the year ahead as companies in this realm attempt to monetize quality information in a steady stream of noise. I expect to see consolidation, metered paywalls (as pioneered by The New York Times (NYSE:NYT) and The Wall Street Journal (NYSE:NWS) and yes, several respected outlets could toss the towel.
We the People: The polarizing political spectrum, which is all-consuming and increasingly acrimonious, could-and indeed should-spur an uprising from those who are socially liberal and fiscally conservative (hand raised!). If the greatest opportunities emerge from the most profound obstacles, a sub-section of the fed-up American public will begin to fortify as the brinkmanship boils on the Beltway.
- Simplify and Expand: As the Misery Index expands, and perhaps becomes part of the mainstream lexicon, more and more folks are going to "turn on, tune in, and drop out." These modern-day hippies won't turn to psychedelic hallucinogens but rather drop out of an interconnected social sphere that has paradoxically isolated our society. Privacy becomes more of a hot-button issue, and there is a palpable pushback against the likes of Facebook (NASDAQ:FB), LinkedIn (NYSE:LNKD) and Twitter.
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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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