The Three Phases of Leave
An unemotional approach to investing.
Editor's Note: Todd posts his vibes in real time each day on our Buzz & Banter.
These are heady days in the financial markets. Late last week, world peace broke out after Mario Draghi boldly pledged what no ECB president has pledged before: an unlimited bond-purchase program in an attempt to rein in sovereign interest rates and protect the eurozone currency. That was followed on Friday by jobs data that was so fugly, Jets fans could be heard chanting QE3 all the way from the Meadowlands.
Yesterday, we detailed the catalysts this week that could bring the “other side” of the euphoria to fore. As shared at the time:
“The biggies, of course, are the German vote on Wednesday and the FOMC 'rate decision' on Thursday — although that will be more about QE3 than an incremental rate adjustment (real interest rates are already negative). There is also a Dutch election on Wednesday that isn't getting much press, but it will matter on the margin. Sprinkle in an Apple (AAPL) iPhone 5 launch and you’ve got yourself a recipe for volatility."
While many will argue that our once-noble profession—we must hearken back to the days when free markets greased the wheels of capitalism and served as the ultimate arbiter of meritocracy—has devolved into a giant game of chicken, with cumulative imbalances on one side and central bank agendas on the other, the psychological song remains the same for those still muddling through the market mechanism.
The three primary players in this process can be found below, with definitions courtesy of Merriam-Webster:
1: refusal to satisfy a request or desire
2a (1): refusal to admit the truth or reality (as of a statement or charge) (2): assertion that an allegation is false b : refusal to acknowledge a person or a thing : DISAVOWAL
1: to move from one country, place, or locality to another
2: to pass usually periodically from one region or climate to another for feeding or breeding
3: to change position in an organism or substance
1: Relating to, or resembling the mental or emotional state believed induced by the god Pan
2: Relating to, or arising from a panic <panic buying>
Or, as summed up in this nifty little chart below:
More recently, a chart was brought to my attention, although you must forgive me as I misplaced the source. It’s a variation of the above dynamic with current-day influences mixed in for good measure.
Perhaps nowhere is our current course better summed up—and yes, the timing of this post is perfect as 1) Germany votes on the constitutionality of the massive sovereign aid package and 2) The FOMC weighs whether to unleash another round of stimulus despite mainstay market proxies trading at four-year highs. Four-year highs and they’re still contemplating another adrenalin shot.
Says a lot, eh? Particularly against a backdrop of 1.7% GDP in the face of upwards of $15 trillion in aggregate stimulus since the first phase of the financial crisis arrived. But there’s nothing to see here; move along folks.
I detail my active trading each session on the Buzz & Banter (click here for a free two-week trial). That’s the best—and most timely—content in the ‘Ville, so if you wanna learn a lot from folks a lot smarter than me, give it a shot—you’ve got nothing to lose!
Good luck today.
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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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