Will Global Markets Soon Recover or Enter a Second Great Depression?
Where you stand is a function of where you sit.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
Kevin Depew, when referencing the mainstream mindset during The Great Depression, often wrote, "Just when everyone thought it was over, it was really only beginning.”
That quote—along with Peter Atwater’s, “It’s not the depth of a recession that matters; it’s the length. Anyone can hold their breath for a minute when they’re 10 feet underwater but a man can drown in six inches of water if he’s face-down long enough”—has stuck with me through the years as we navigate these unchartered waters in global financial markets.
I’m on record championing a legitimate recovery ripe with Millennial-led human capital once—and only once—we get through the sovereign sequel to the first phase of the financial crisis. Perhaps I’m in the minority but I don’t believe we can ascertain the difference between an economic recovery and a stock market rally until we measure our growth apples-to-apples.
To wit, the US government, in one form or another, has thrown upwards of $13 trillion in stimulus at the financial crisis yet we’re seeing 1.9% annual growth, as per this morning’s release of the GDP. Perhaps more concerning is that risk hasn’t been removed, it’s simply transferred from one perception to another, from corporate balance sheets to government liabilities, stateside and abroad.
As a trader, the path we take is entirely more important that the destination we arrive at, and we walk that walk each day on our real-time Buzz & Banter. As an investor—and a father—I’ve kept a mindful eye on both as I monitor the unintended consequences that continue to percolate through our socioeconomic sphere.
Indeed, when we postured the eventual emergence of the socioeconomic malaise several years ago—and the steps that would likely follow—many raised an eyebrow. Not so much anymore, as evidenced by the societal acrimony weaving throughout the world.
I’ve highlighted two graphics below, courtesy of Albert Edwards of Societe General. They paint an unpopular perspective but one we would be wise to consider. Markets move in two cycles—secular and cyclical—and while we’ve witnessed a Pulp Fiction-esque economic adrenaline-induced rally off the 2009 lows, the structural impediments to legitimate growth—in short, too much debt—remain in place.
Source: Societe General
Source: Societe General
I continue to believe that a phoenix will arise from this scorched earth and those eggs are hatching as we speak, and view The Great Depression as a framework for optimism; most of society worked, great discoveries were made, and formidable franchises were established.
As we discussed in September 2008,
Something good comes from all things bad and the greatest wisdom is bred as a function of pain.
It’s unfortunate that the structural foundation of the global capital market system had to shake before people—and policy makers—paid attention but it is what it is and we’ll do what we must.
Surround yourself with people you trust. Practice risk management over reward chasing.
Preserve capital, reduce debt and become financially aware of your surroundings. It won’t be an easy road but it won’t be impossible either.
For as my grandfather Ruby used to tell me, “This too, shall pass."
Indeed, where you stand is a function of where you sit, and while it’s impossible to offer blanket financial advice to an audience with diverse risk appetites and time horizons, I will encourage everyone to sync those two dynamics—your time horizon and risk profile—while allowing for an ample margin for error.
Anyone who tells you that they know with any degree of certainty where this grand experiment will lead us is either guessing, lying or trying to sell you something. In the immortal words of Jerry Garcia, "There is a road, no simple highway; between the dawn and the dark of night and if you go, no one may follow; that path is for your steps alone."
Choose wisely and as always, may peace be with you.
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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 email@example.com.
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