Will this evenings FOMC announcement propel the Dow towards new year highs or will it be the catalyst to send the markets spiralling south ?
We shall soon see !
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Don't invest in fairy tales: The current psychology feels a lot like May
By Todd Harrison, Sep 20, 2006
Editor's note: Todd Harrison is founder and CEO of Minyanville.
NEW YORK (MarketWatch): "I don't think I want to know a six-year-old who isn't a dreamer or a sillyheart." -- Uncle Buck
I used to love fairy tales. No matter how ornate the plot, everyone lived happily ever after. It was one of those small creature comforts that embedded a sense of security in us all. We figured that Cinderella would one day marry her prince. We reasonably assumed that the third little pig would get the last laugh. And we always believed, in the back of our brain, that Goldilocks would find a place that was "just right."
Of course, young Goldy experienced a rude awakening. While she peacefully slumbered in the baby bear's bed, the angry ursine surrounded her and ended her journey on a somber note. Sure, she was fat and happy when she met her fate but her last visual was a slew of sharp claws that ushered in a deep sleep of a different kind.
Fast forward to Wednesday's tape.
As the mainstream media celebrates new highs in the Dow Jones Industrial Average, call it the inevitable porridge, we'd be wise to remember the lessons learned from the young and impressionable blonde. The current psychology feels a lot like it did in May, when headlines about An Old Fashion Economic Boom were in vogue and journalists anticipated the "woo woos and throwing paper" that would inevitably be unleashed on the floor of the exchange.
Of course, this time is different and we would be wise to note the subtle shift. While concerns about heat exhaustion led to the demise of the spring assault, latent fears of a global slowdown will likely be the upcoming culprit. To be sure, the Matador Crowd has chosen to focus on what's gone right. The sharp correction in crude, for instance, is still being viewed as a consumer crutch rather than a deflationary precursor. When investors begin to ask "why" rather than "what," perception, which is the market's reality, will shift on a dime. I opined a few weeks ago that the spill in the commodity space, as measured by the break of the five year uptrend of the CRB, might have ominous ramifications for the equity realm. Through my lens, the reflation trade that ushered in the high-tide that lifted all asset class boats, at the expense of the dollar, offered visualization that the seas have shifted. That hasn't played out, which is to say that I was wrong. Only time will tell if I was simply early.
To be sure, there is a subtle difference between a "lack of inflation," as evidenced by Tuesday's PPI, and "deflation," in a conventional sense. The scenario described above is predicated on a mean-reverting bounce in the commodities, which has yet to unfold. Yogi Berra once said that we can observe a lot just by watching. That lack of sponsorship warrants attention. There have been rumblings that the supply side pressure can be chalked up to hedge fund liquidations such as Amaranth but we would be wise to remember that rationalization is a double edged sword. In a derivative laden, interwoven financial fabric, losses like that can shift from containment to contagion in a hurry. I'm not smart enough to offer when the bloom will fade from the bovine rose but I'm seasoned enough to respect the risks. With the consumer mired in debt, $2 trillion of adjustable rate mortgages resetting by the end of next year and societal acrimony perking up from Hungary to Thailand -- not to mention the fragile nature of the Middle East -- the global landscape is telling us all we need to know about risk versus reward. Perhaps we can navigate ourselves through these dicey times but I learned a long time ago that hope isn't a viable investment vehicle.
Happy endings often happen but life, as we've learned, is no fairy tale.
We shall soon see !
........................................................................................................
Don't invest in fairy tales: The current psychology feels a lot like May
By Todd Harrison, Sep 20, 2006
Editor's note: Todd Harrison is founder and CEO of Minyanville.
NEW YORK (MarketWatch): "I don't think I want to know a six-year-old who isn't a dreamer or a sillyheart." -- Uncle Buck
I used to love fairy tales. No matter how ornate the plot, everyone lived happily ever after. It was one of those small creature comforts that embedded a sense of security in us all. We figured that Cinderella would one day marry her prince. We reasonably assumed that the third little pig would get the last laugh. And we always believed, in the back of our brain, that Goldilocks would find a place that was "just right."
Of course, young Goldy experienced a rude awakening. While she peacefully slumbered in the baby bear's bed, the angry ursine surrounded her and ended her journey on a somber note. Sure, she was fat and happy when she met her fate but her last visual was a slew of sharp claws that ushered in a deep sleep of a different kind.
Fast forward to Wednesday's tape.
As the mainstream media celebrates new highs in the Dow Jones Industrial Average, call it the inevitable porridge, we'd be wise to remember the lessons learned from the young and impressionable blonde. The current psychology feels a lot like it did in May, when headlines about An Old Fashion Economic Boom were in vogue and journalists anticipated the "woo woos and throwing paper" that would inevitably be unleashed on the floor of the exchange.
Of course, this time is different and we would be wise to note the subtle shift. While concerns about heat exhaustion led to the demise of the spring assault, latent fears of a global slowdown will likely be the upcoming culprit. To be sure, the Matador Crowd has chosen to focus on what's gone right. The sharp correction in crude, for instance, is still being viewed as a consumer crutch rather than a deflationary precursor. When investors begin to ask "why" rather than "what," perception, which is the market's reality, will shift on a dime. I opined a few weeks ago that the spill in the commodity space, as measured by the break of the five year uptrend of the CRB, might have ominous ramifications for the equity realm. Through my lens, the reflation trade that ushered in the high-tide that lifted all asset class boats, at the expense of the dollar, offered visualization that the seas have shifted. That hasn't played out, which is to say that I was wrong. Only time will tell if I was simply early.
To be sure, there is a subtle difference between a "lack of inflation," as evidenced by Tuesday's PPI, and "deflation," in a conventional sense. The scenario described above is predicated on a mean-reverting bounce in the commodities, which has yet to unfold. Yogi Berra once said that we can observe a lot just by watching. That lack of sponsorship warrants attention. There have been rumblings that the supply side pressure can be chalked up to hedge fund liquidations such as Amaranth but we would be wise to remember that rationalization is a double edged sword. In a derivative laden, interwoven financial fabric, losses like that can shift from containment to contagion in a hurry. I'm not smart enough to offer when the bloom will fade from the bovine rose but I'm seasoned enough to respect the risks. With the consumer mired in debt, $2 trillion of adjustable rate mortgages resetting by the end of next year and societal acrimony perking up from Hungary to Thailand -- not to mention the fragile nature of the Middle East -- the global landscape is telling us all we need to know about risk versus reward. Perhaps we can navigate ourselves through these dicey times but I learned a long time ago that hope isn't a viable investment vehicle.
Happy endings often happen but life, as we've learned, is no fairy tale.
