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Todd Harrison
June 16, 2010, 12:01 a.m. EDT · Recommend (15) · Post:
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By Todd Harrison
NEW YORK (MarketWatch) -- It's easy to finger the bears as a cabal of pessimistic pundits who root against the world.
Following the single worst decade in financial market history, they've earned the benefit of their own market doubt.
As negative headlines abound and social mood sours, some might view the mounting malaise as a contrary indicator. One could also argue that the prolonged period of substandard performance is on the margin constructive; that a regression to the historical mean would suggest double-digit returns for the foreseeable future.
I would agree, if not for the inherent fragility of the global market construct and the sheer size of the imbalances. Read Minyanville's "Five Things You Need to Know About the Markets."
We often discuss our current crossroads; government drugs that mask the symptoms after years of societal largesse versus medicine that cures the disease in the form of asset class deflation and debt destruction or restructuring. We repeat this analogy for good reason: it's true. Read Minyanville's "Defining a Path to Economic Recovery."
I may be off base -- I've learned to stay humble or the market will do it for me -- but a single word continues to resonate in my mind's eye as we edge our way through this historic fray; that word is "cumulative."
As offered in 2005 at the Minyanville retreat in Ojai, Calif. "The problem that comes from engaging in high-risk behavior for which the consequences are absent, even if only temporarily, is that such high-risk behavior begins to appear normal, and the entire scale of risk gets adjusted and pushed out." Read Minyanville's Ojai keynote.
Therein lies the fatal flaw of our current conundrum. We've been pushing risk further out on the time continuum for such a long time that it's become an accepted -- dare I say normalized -- pattern that interconnects the world through a tangled web of derivatives.
'Outside in the cold distance, a wildcat did growl. Two riders were approaching and the wind began to howl.'
Bob Dylan
While the recent price action has been docile, I believe we're in the eye of the storm, a relative calm between the first phase of the financial crisis and the cumulative comeuppance that'll flush -- and perhaps reset -- the system.
You know it won't come easy; this decade will require steadfast stamina and proactive patience. While the first half will be focused on preservation and perseverance, the back nine will be ripe with rewards.
Some may perceive the above-mentioned vibe as overtly negative but I'll offer a different take. I shared the following thoughts in September 2008 and they're equally apt today as the second side of this storm builds on the horizon. Read Minyanville's "The Great Expression."
There are many ways to view this seismic shift; anger (as expressed by Main Street), sadness (as savings are destroyed), fear (as reality bites) and confusion (as folks try to understand how this could ever happen).
And there's anticipation, as we cast an eye forward and look for the phoenix that will eventually arise from the scorched earth.
The unfortunate capital market destruction is an inevitable comeuppance, the cumulative result of risk gone awry.
It's been percolating under the seemingly calm surface for several years, magnified by financial engineering and consumed by an immediate gratification society.
Apple fanboys and fangirls hungry for the new iPhone will likely be frustrated by the latest bit of drama from the tech company.
1:11 p.m. Today1:11 p.m. June 16, 2010 | Comments: 16
- JanPaul | 11:36 p.m. June 15, 2010
"Straight from the Editor in Chief RT @dcallaway: second quarter earnings warnings piling up http://bit.ly/ae8goq" 12:31 p.m. EDT, June 16, 2010 from MarketWatch
"#Fannie and #Freddie are delisting their stocks from the #NYSE http://bit.ly/a3m0Gr" 12:05 p.m. EDT, June 16, 2010 from MarketWatch
"RT @MktwHulbert: Dow Theory shows bull market trying to avoid death sentence http://on.mktw.net/cP4KGm" 11:45 a.m. EDT, June 16, 2010 from MarketWatch
"Switzerland beats Spain (1-0) in first-round World Cup upset http://on.mktw.net/93j4O4" 11:12 a.m. EDT, June 16, 2010 from MarketWatch
"N.Y. Times says BP to put $20 billion in escrow http://on.mktw.net/alCScW" 11:10 a.m. EDT, June 16, 2010 from MarketWatch
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