Europe's Most Important Week Is Upon Us
Is their Credit Card set to expire?
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
The bipolar stroller continues as we fire our jets for the final fifth of this freaky week. It's been an active stretch with a little something for everyone but if you were half a step slow, it was a lesson in frustration. Nobody said it was gonna be easy; there's no shame in admitting it's hard; there's only shame in pretending it's not.
Yesterday morning, I highlighted the price action in gold-and commodities in general-as the yellow metal smelted lower. As commodity volatility typically precedes equity movement (as demonstrated in the chart below) we shared on the Buzz & Banter (click here for a free two-week trial) that it was the biggest fly in the bovine try as we tip-toed toward the weekend.
Sometimes you can learn a lot just by watching. Not only did gold tell the tale, it planted seeds of doubt just as the bullish contingent was starting to feel empowered. It's not what "is" that moves the market, it's what's perceived to be, which is why psychology is one of our four primary metrics (along with fundamentals, structural influences, and technical analysis).
Click to enlarge
I will hearken back to a column I wrote in August 2007 called The Credit Card. At the time-a few months after "CDOs" and "sub-prime mortgages" were first introduced to mainstream vernacular-Treasury Secretary Hank Paulson was quick to assure us the problems were contained.
That's when Minyanville started noticing some strange happenings in the marketplace. High profile snafus at Bear Stearns (JPM), Goldman Sachs (GS), and American Home Mortgage, BNP Paribas halted withdrawals from three funds because it couldn't fairly value holdings tied to sub-prime mortgages, and the ECB-in "an unprecedented response to a sudden demand for cash"-injected $130 billion into the financial machination (that used to be considered a lot of money).
Indeed, we knew something was afoot when Canada-Canada!-assured us that it would provide liquidity to ensure the continued functioning of financial markets.
As we shared at the time,
As we continue to listen to the vernacular from the powers that be, the onus is on us to assimilate the cumulative dynamic that has evolved over the last five years.
The Federal Reserve attempted to buy time on the back of the tech bubble with fiscal and monetary stimuli that encouraged risk-taking, reward-chasing behavior. It was a grand experiment and it continues to brew.
While debt is front and center, credit of a different breed-credibility-has emerged as the issue at hand for markets at large.
If and when investors begin to perceive that central banks are no longer larger than the markets-and this, in my opinion, is simply a matter of time- a crisis in confidence will ensue.
I'm not smart enough to know when this will happen and I'm respectful of the fact that a cornered animal will bite, scratch, claw -- and potentially kill -- to ensure survival.
Those animal spirits have laid many bears to rest over the years. Psychology, as with the markets, moves in cycles of denial, migration and panic.
One thing is for sure; when the wheels wobble off the global financial wagon, the warning signs will be obvious with the benefit of hindsight.
Unfortunately -- or fortunately, depending on your preparedness -- the crimson dye will already be cast.
Welcome to the finance-based, debt-dependent, oh-my-goodness mindset, where the only true preparation is legitimate financial education.
The Here and Now
Why the walk down memory lane? An article on the Spanish Prime Minster, Rajoy's Blown Credibility Puts Spain at Risk of Bailout, caught my eye as the European crisis enters perhaps the most important week yet. On June 28, leaders of the 27 member countries of the European Union will meet for a two-day gathering.
As a trader, I'm less concerned with the destination than I am with the path I take to get there (although as a father, I'm plenty concerned with the destination as well) and I've flipped my stylistic approach-trading from the long side vs. the short side-a few times this year.
I traded with a bullish bent from December until S&P 1360 (and proceeded to get squeezed up to S&P 1420) until the tide turned and I rode the market lower through May (or, through most of May until a situation beyond my control dictated that I flatten risk).
Since that time, I've traded surgically-situation specific-with tight risk parameters and an open mind. I legged in and out of a long Apple (AAPL)-short Google (GOOG) pairs trade a few times and more recently, built a decent size long which caught an upside phase before paring risk into this week's FOMC meeting (I was openly wary of a "sell the news" reaction). As I touched on at the beginning of this column, the price action in gold tipped the bears hand yesterday, which brings us to the here and now.
As always, we will share our best and most timely thoughts on the Buzz & Banter and as the flickering ticks spring to life, it's time for me to hop the fence and share that fare. Before I go, I would like to touch on the important stuff that tends to fall through the cracks-until it happens to someone you love.
An old school Minyan-a gentleman I've communicated with for many years-recently suffered the worst kind a tragedy, the loss of his 21-month-old daughter. As a first-time father of a one year old daughter who is the sparkle in my eye, I was so moved by his story that I reached out to personally express my condolences.
A few hours later, I received the email below, which I share with his blessing for the benefit of the Minyanville community. I will be honoring Maelin by supporting this worthy cause and will ask those who are able to do the same. I understand that times are tough but it could be worse and for many others, it already is.
Thanks in advance for your consideration and have a mindful weekend.
Thanks so much for the phone call this afternoon; it meant a lot to me and brought me much comfort. Just knowing that people care about me and my family in the way that they do gives me some sort of peace.
I was thinking about what you said earlier about a donation to something I deeply care about and for whatever reason I couldn't think of something so dear to my heart when you asked. I now have.
My dear friend Steve Gleason has been stricken with ALS (Lou Gehrig Disease). He is a former New Orleans Saint and a local hero; he is also a new father to his baby boy Rivers.
He and his wife Michel hold a very special place in my heart and they are handling their situation with such grace and strength that it just awe inspiring. You can read about their story at www.teamgleason.org.
They have established a foundation called the Gleason Family Trust, which aids them with his medical expenses, child care, and whatever else they need to get them through the tough times ahead. Other than my wife and my two daughters, that is what is most important to me right now.
They are living their life to the fullest while Steve still has time to do it. They are traveling this summer and you can follow their journey on the blog they are keeping. The website can be found here. It's pretty amazing and extremely inspirational; it's the type of journey we can all benefit in sharing.
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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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