Happy New Year - Welcome To The Brave New World Of Volatility
It's the start of a new year. A time when I would probably document the past year or the upcoming year. I really don't have the energy to do so in any detail. I prefer to babble rather than think too much for this post. So, we'll go with a stream of conscience.
I guess first things first. None of our major themes on here have changed. But, then they haven't since I started blogging. This isn't Mad Money or follow the crowd where emotions determine opinions that change as often as the days gone by. Most anything of significance on here is backed up by quantitative data. When the data changes and, therefore, some macro theme or expected outcome changes, we'll attempt to acknowledge and discuss it. That leads into my next remark. Those who argue the majority of this crisis has passed are in for a rude awakening. That said, I expect we could see some type of tenuous stabilization at a muted economic level for the first half of 2009. That might finally include a stabilization or rally in some assets as we discussed over the last month. But before we get too excited, by some measures we currently have the most overbought stock market in the last six months. Were some protracted stabilization to happen, we could see a reduction in volatility for some period of time. Will we get a monster stock market rally that many are calling for? Well, most calls for a monster rally are based on senseless me-too thinking. The few times logic is applied, the most common remarks are how much money is in cash equivalents. This data point that has been cited by many for a year as proof of an impending rally. How's that working for you? Even some capable minds such as Steve Leuthold are citing this very anecdotal and I believe generally useless data point. For such a position to have any validity, that money needs to be coaxed into equities and/or high-risk assets. And, done so at higher and higher prices. We shall see how many corporations and individuals chose to dump more and more money into equities at higher and higher prices as opposed to keeping substantial cash on hand to deal with a very uncertain future and limited access to credit. Instead, what this sounds like is an attempt of the typical Wall Street pump and dump. Pump up talk of a rally, get one going if possible, get the general public to re-enter the market at higher prices and end up dumping share prices to duped investors before another decline. You know the game. Bernie Madoff has simply made more people aware of it. Could we get a large rally? I could paint a plausible picture of floating in a band for an extended period of time or I could see an eventual rally with some sustainability. I like to have the market give me answers rather than anticipate too much short term movement. Anticipation has killed investors and many traders in 2008. Frankly, no one knows to what extent the market will or will not rally. And, that makes those calling for a mega rally either liars or lucky or both. Leuthold, a well respected gent, has also told clients, some of whom are the biggest firms on Wall Street, that this is the buying opportunity of a life time. I guess if it is, I'll have to miss out on anything other than a possible trade because my models do not make any such giddy conclusions. The reality is all of the major risks to the economy remain. The most important of which are clearly not understood at all. And, I do mean not at all. How do I know that? Because not a single voice has uttered a single word about the largest risks. It just so happens to be why the establishment completely missed the size and scope of this crisis.
As most have figured out by now, this crisis did not start out as a "recession" in the typical sense of the word. As far as I know, we were the first and one of a handful worldwide to predict the very serious risk of a credit crunch before it happened. In fact, 2008 was the onset of an economic environment where both bulls and bears were both wrong. For that both suffered financially. Significantly so. The bulls did not expect a serious slow down in the US. Then when that happened they anticipated the rest of the world would pull the global economy through. The bears expected commodities to run forever, the dollar to collapse and foreign markets to provide a safe haven while the US collapsed. Beliefs die a slow death. Remember that because we are going to live through the consequences of it.
We have now progressed into a very serious recession or more likely the onset of something far more sinister without radical change. (Radical does not mean more irresponsible government spending.) What we are now witnessing is more appropriately defined as a period of heightened volatility. History is littered with periods such as this. These periods have always involved human conflict of some sort. That conflict is often a struggle of people who yearn for greater freedoms or wish to throw off the shackles of repression. This includes developed nations where we have often seen unconscionable and even heinously criminal vacuums of leadership in government, society and business. This environment also often gives way to hooligans who bamboozle society to gain control with messages of hate and blame. And, then use that control to unleash conflict across the world. To date, there are dozens of countries now embroiled in internal or external conflict as the state and other sources of power seek control at the expense of truth and freedom. The state is moving to the forefront of this crisis and for that we should all be concerned. 'War is the health of the state' as we have been told by many of history's voices of truth. Regardless of exactly how this environment unfolds, the most substantial outcome we see to this crisis is a rapidly spreading virus of volatility and unrest around the globe. We can expect this to continue as people often fight for their very existence. Something we uniquely discussed could/would happen while the party was still in progress.
One point that really surprised me in 2008 was the scope of entitlement mentality amongst the elitist crowd. Such a disconnect and lack of compassion or concern creates a desire amongst many in society to see the entire system collapse. Why? The system is viewed as corrupt. And for those who view the public's response to these schemes as muted, I recently had a mild mannered relative tell me that Wall Street executives should be punished by the death sentence. I'm sure this is a rather common perspective even if it is not often verbalized. I think the tone of the country is severely misunderstood by those expecting upset people to be hanging from trees or driving tanks through the White House. This entitlement mentality is fueled by the total lack of leadership and values in government. Apparently, as long as elitists believe they can do as they wish at the expense of others, they will. And, I do mean at the expense of others. Because what we have witnessed has not been wealth creation, it has been wealth transfer. Often via criminal and corrupt means. This brazenness is a potentially dangerous development that we shall continue to monitor.
The oft thrown out statement that we are in uncharted waters is completely ridiculous. Humanity always ends up right back where it started. In many regards we have made little progress on our path to enlightenment. Indeed, we have been here many times throughout history. As we said while most everyone was partying, this is the biggest financial bubble in U.S. history, but to say we are in uncharted waters is simply untrue. There are some minor similarities to events over the past forty years but on a macro level this is much different than anything we have seen in quite some time. The closest parallels of volatility in modern history are probably the economic crises preceding World War's I & II. There may be better economic parallels such as 1929 or 1937 with a twist but regardless we are in a period of great volatility that is leading to potentially unprecedented destabilization. The race to the bottom of the economic barrel we have often talked about is a precursor to even greater volatility unless it is reversed. True cooperation to stem this action would involve an entirely new economic construct that doesn't benefit the majority of the power players so we'll see the mess grow larger as states seek to maintain control while giving photo-ops and lip service to cooperation. Additionally as we have often said, that the U.S. is somehow responsible for this global mess or even that it started here is absolutely ridiculous. If you believe the U.S. has created this mess, you are listening to too many pundits and not doing enough of your own thinking. The U.S. caused its own mess. And, everyone else caused their own as well. Finger pointing by the state is an effort to deflect criticism and ire to maintain control.
Finally re 2008, I saw a top economist comment six or so months ago that there are 15,000 degreed economists in the U.S. and that maybe half a dozen predicted a serious recession. Yet, none predicted the magnificence of we now see. That doesn't speak very highly of economics as a valid science. But, then never in history have a preponderance of economists accurately predicted anything of significance. I guess that makes me the top economist in the U.S. Haha. Maybe I'll change my blog title to that of "The World's Foremost Economist". Most economists, certain that their degree makes them uniquely more enlightened, would never consider someone without a degree in economics had anything relevant to say anyway. It's the same mindset I have seen with people who work on Wall Street or within the financial community. And, with people who seek advice or counsel from both economists and Wall Street. Therein lies the crux of the problem. How could someone without a degree in economics possibly know more about economics than a degreed economist? Or, how could someone without a degree in finance know more than a Wall Street professional? For those seeking enlightenment, the explanation is really quite simple. A timeless truth that I live by - one should never let their schooling interfere with their education. Some substantially measurable amount of schooling is group-think, modern day mythology and brainwashing as opposed to incontrovertible truth. I'll get up a post some time on an interesting experience I recently had with a top economist. Needless to say, he could be classified with the majority of the 15,000 economists.
I'll have to see how much time I have in 2009 for posting. As I've said, at some point, I'll be posting less. Well shall see how 2009 progresses. I've also got some posts from 2008 that I'll get posted. We'll also discuss what changes are going to be needed to pull us out of this morass. None of them directly involve the Federal Reserve because as we've said for years, the Fed doesn't control the economy. (Although they are now pretty close to trying.) Many needed changes are easily accomplished if there is a will for true change. To date there isn't among the elite and in government. But the deeper we go, the greater the will shall become as a matter of survival. As was said ages ago, there are no hopeless situations, only men and women who have grown hopeless about them. There will likely be a lot of hopelessness as those who benefited from this cycle and control the microphone refuse to embrace the permanent change we see in the global economy. Change that is pointing to a way out but that will be resisted for reasons of greed and power. If we have enough time, we'll also talk about where the world economy and the U.S. in particular is ultimately going in the future. We've put many of the pieces to the puzzle on the table over the last three years but now we'll put them together. The journey's path involves some subjectivity of humanity so we'll fill in some of the easier pieces in advance and more as subjectivity is removed over time. Finally re 2009 topics for this blog, I may stray off the beaten path a little bit further in 2009 if I have the time. To briefly stray into other arenas where group-think and very faulty logic akin to voodoo often determine society's belief systems. And, to discuss a little voodoo of my own.
As it pertains to the immediate future, there is great anticipation that a new U.S. Presidency will lead us out of this mess and somehow save the world from itself. No one would embrace this more than me but this perspective has little basis in reality. Here is the reality. The unexpected crises awaiting the new Presidency will likely be some of the most difficult, if not the most difficult in history. So, we'll see a lot of on the job (OTJ) training. There is no appropriate experience for the magnitude of what awaits the world. Were experience the overriding factor, Bill Clinton and George Bush would be the two most highly qualified Presidents at our disposal. I consider both to be two of the worst Presidents in American history in their own right. In other words, experience is highly overrated. Additionally, were experience the overriding factor, we'd be looking to the pinheads on Wall Street who created this mess to tell us how best to get out of it. Experience without substantial context is one of the weakest yet most often used qualities to measure talent. Why is it that those far and away with the most experience - government officials, economists, CEOs and Wall Street - have been completely caught off guard by this crisis?
Ultimately, there is one great truth to remember as we head into 2009 - we are pushing headlong into a period of tremendous change. Much of it will be very difficult and very, very unfair. That should be a warning sign to the world's elite.
Positive change always starts from the spark of a single mind. Don't look for that change to come from the known entities be it government, business or even well-known experts or personalities. Millions upon millions of small changes by completely unknown people have had the greatest of impacts on humanity. So, every person reading this has the ability to make positive and lasting change a reality. Only you can change the world. That is the way it always has been and always will be. If you want a different world, you must be willing to commit to changing it in 2009 and beyond. It won't be easy. Nothing worth fighting for ever is. On that note, that we have a new President who is a great unknown with little experience may turn out to be one of the greatest upside surprises this country has ever experienced from a governance standpoint.
With this as a background we now start the year of nines.
I guess first things first. None of our major themes on here have changed. But, then they haven't since I started blogging. This isn't Mad Money or follow the crowd where emotions determine opinions that change as often as the days gone by. Most anything of significance on here is backed up by quantitative data. When the data changes and, therefore, some macro theme or expected outcome changes, we'll attempt to acknowledge and discuss it. That leads into my next remark. Those who argue the majority of this crisis has passed are in for a rude awakening. That said, I expect we could see some type of tenuous stabilization at a muted economic level for the first half of 2009. That might finally include a stabilization or rally in some assets as we discussed over the last month. But before we get too excited, by some measures we currently have the most overbought stock market in the last six months. Were some protracted stabilization to happen, we could see a reduction in volatility for some period of time. Will we get a monster stock market rally that many are calling for? Well, most calls for a monster rally are based on senseless me-too thinking. The few times logic is applied, the most common remarks are how much money is in cash equivalents. This data point that has been cited by many for a year as proof of an impending rally. How's that working for you? Even some capable minds such as Steve Leuthold are citing this very anecdotal and I believe generally useless data point. For such a position to have any validity, that money needs to be coaxed into equities and/or high-risk assets. And, done so at higher and higher prices. We shall see how many corporations and individuals chose to dump more and more money into equities at higher and higher prices as opposed to keeping substantial cash on hand to deal with a very uncertain future and limited access to credit. Instead, what this sounds like is an attempt of the typical Wall Street pump and dump. Pump up talk of a rally, get one going if possible, get the general public to re-enter the market at higher prices and end up dumping share prices to duped investors before another decline. You know the game. Bernie Madoff has simply made more people aware of it. Could we get a large rally? I could paint a plausible picture of floating in a band for an extended period of time or I could see an eventual rally with some sustainability. I like to have the market give me answers rather than anticipate too much short term movement. Anticipation has killed investors and many traders in 2008. Frankly, no one knows to what extent the market will or will not rally. And, that makes those calling for a mega rally either liars or lucky or both. Leuthold, a well respected gent, has also told clients, some of whom are the biggest firms on Wall Street, that this is the buying opportunity of a life time. I guess if it is, I'll have to miss out on anything other than a possible trade because my models do not make any such giddy conclusions. The reality is all of the major risks to the economy remain. The most important of which are clearly not understood at all. And, I do mean not at all. How do I know that? Because not a single voice has uttered a single word about the largest risks. It just so happens to be why the establishment completely missed the size and scope of this crisis.
As most have figured out by now, this crisis did not start out as a "recession" in the typical sense of the word. As far as I know, we were the first and one of a handful worldwide to predict the very serious risk of a credit crunch before it happened. In fact, 2008 was the onset of an economic environment where both bulls and bears were both wrong. For that both suffered financially. Significantly so. The bulls did not expect a serious slow down in the US. Then when that happened they anticipated the rest of the world would pull the global economy through. The bears expected commodities to run forever, the dollar to collapse and foreign markets to provide a safe haven while the US collapsed. Beliefs die a slow death. Remember that because we are going to live through the consequences of it.
We have now progressed into a very serious recession or more likely the onset of something far more sinister without radical change. (Radical does not mean more irresponsible government spending.) What we are now witnessing is more appropriately defined as a period of heightened volatility. History is littered with periods such as this. These periods have always involved human conflict of some sort. That conflict is often a struggle of people who yearn for greater freedoms or wish to throw off the shackles of repression. This includes developed nations where we have often seen unconscionable and even heinously criminal vacuums of leadership in government, society and business. This environment also often gives way to hooligans who bamboozle society to gain control with messages of hate and blame. And, then use that control to unleash conflict across the world. To date, there are dozens of countries now embroiled in internal or external conflict as the state and other sources of power seek control at the expense of truth and freedom. The state is moving to the forefront of this crisis and for that we should all be concerned. 'War is the health of the state' as we have been told by many of history's voices of truth. Regardless of exactly how this environment unfolds, the most substantial outcome we see to this crisis is a rapidly spreading virus of volatility and unrest around the globe. We can expect this to continue as people often fight for their very existence. Something we uniquely discussed could/would happen while the party was still in progress.
One point that really surprised me in 2008 was the scope of entitlement mentality amongst the elitist crowd. Such a disconnect and lack of compassion or concern creates a desire amongst many in society to see the entire system collapse. Why? The system is viewed as corrupt. And for those who view the public's response to these schemes as muted, I recently had a mild mannered relative tell me that Wall Street executives should be punished by the death sentence. I'm sure this is a rather common perspective even if it is not often verbalized. I think the tone of the country is severely misunderstood by those expecting upset people to be hanging from trees or driving tanks through the White House. This entitlement mentality is fueled by the total lack of leadership and values in government. Apparently, as long as elitists believe they can do as they wish at the expense of others, they will. And, I do mean at the expense of others. Because what we have witnessed has not been wealth creation, it has been wealth transfer. Often via criminal and corrupt means. This brazenness is a potentially dangerous development that we shall continue to monitor.
The oft thrown out statement that we are in uncharted waters is completely ridiculous. Humanity always ends up right back where it started. In many regards we have made little progress on our path to enlightenment. Indeed, we have been here many times throughout history. As we said while most everyone was partying, this is the biggest financial bubble in U.S. history, but to say we are in uncharted waters is simply untrue. There are some minor similarities to events over the past forty years but on a macro level this is much different than anything we have seen in quite some time. The closest parallels of volatility in modern history are probably the economic crises preceding World War's I & II. There may be better economic parallels such as 1929 or 1937 with a twist but regardless we are in a period of great volatility that is leading to potentially unprecedented destabilization. The race to the bottom of the economic barrel we have often talked about is a precursor to even greater volatility unless it is reversed. True cooperation to stem this action would involve an entirely new economic construct that doesn't benefit the majority of the power players so we'll see the mess grow larger as states seek to maintain control while giving photo-ops and lip service to cooperation. Additionally as we have often said, that the U.S. is somehow responsible for this global mess or even that it started here is absolutely ridiculous. If you believe the U.S. has created this mess, you are listening to too many pundits and not doing enough of your own thinking. The U.S. caused its own mess. And, everyone else caused their own as well. Finger pointing by the state is an effort to deflect criticism and ire to maintain control.
Finally re 2008, I saw a top economist comment six or so months ago that there are 15,000 degreed economists in the U.S. and that maybe half a dozen predicted a serious recession. Yet, none predicted the magnificence of we now see. That doesn't speak very highly of economics as a valid science. But, then never in history have a preponderance of economists accurately predicted anything of significance. I guess that makes me the top economist in the U.S. Haha. Maybe I'll change my blog title to that of "The World's Foremost Economist". Most economists, certain that their degree makes them uniquely more enlightened, would never consider someone without a degree in economics had anything relevant to say anyway. It's the same mindset I have seen with people who work on Wall Street or within the financial community. And, with people who seek advice or counsel from both economists and Wall Street. Therein lies the crux of the problem. How could someone without a degree in economics possibly know more about economics than a degreed economist? Or, how could someone without a degree in finance know more than a Wall Street professional? For those seeking enlightenment, the explanation is really quite simple. A timeless truth that I live by - one should never let their schooling interfere with their education. Some substantially measurable amount of schooling is group-think, modern day mythology and brainwashing as opposed to incontrovertible truth. I'll get up a post some time on an interesting experience I recently had with a top economist. Needless to say, he could be classified with the majority of the 15,000 economists.
I'll have to see how much time I have in 2009 for posting. As I've said, at some point, I'll be posting less. Well shall see how 2009 progresses. I've also got some posts from 2008 that I'll get posted. We'll also discuss what changes are going to be needed to pull us out of this morass. None of them directly involve the Federal Reserve because as we've said for years, the Fed doesn't control the economy. (Although they are now pretty close to trying.) Many needed changes are easily accomplished if there is a will for true change. To date there isn't among the elite and in government. But the deeper we go, the greater the will shall become as a matter of survival. As was said ages ago, there are no hopeless situations, only men and women who have grown hopeless about them. There will likely be a lot of hopelessness as those who benefited from this cycle and control the microphone refuse to embrace the permanent change we see in the global economy. Change that is pointing to a way out but that will be resisted for reasons of greed and power. If we have enough time, we'll also talk about where the world economy and the U.S. in particular is ultimately going in the future. We've put many of the pieces to the puzzle on the table over the last three years but now we'll put them together. The journey's path involves some subjectivity of humanity so we'll fill in some of the easier pieces in advance and more as subjectivity is removed over time. Finally re 2009 topics for this blog, I may stray off the beaten path a little bit further in 2009 if I have the time. To briefly stray into other arenas where group-think and very faulty logic akin to voodoo often determine society's belief systems. And, to discuss a little voodoo of my own.
As it pertains to the immediate future, there is great anticipation that a new U.S. Presidency will lead us out of this mess and somehow save the world from itself. No one would embrace this more than me but this perspective has little basis in reality. Here is the reality. The unexpected crises awaiting the new Presidency will likely be some of the most difficult, if not the most difficult in history. So, we'll see a lot of on the job (OTJ) training. There is no appropriate experience for the magnitude of what awaits the world. Were experience the overriding factor, Bill Clinton and George Bush would be the two most highly qualified Presidents at our disposal. I consider both to be two of the worst Presidents in American history in their own right. In other words, experience is highly overrated. Additionally, were experience the overriding factor, we'd be looking to the pinheads on Wall Street who created this mess to tell us how best to get out of it. Experience without substantial context is one of the weakest yet most often used qualities to measure talent. Why is it that those far and away with the most experience - government officials, economists, CEOs and Wall Street - have been completely caught off guard by this crisis?
Ultimately, there is one great truth to remember as we head into 2009 - we are pushing headlong into a period of tremendous change. Much of it will be very difficult and very, very unfair. That should be a warning sign to the world's elite.
Positive change always starts from the spark of a single mind. Don't look for that change to come from the known entities be it government, business or even well-known experts or personalities. Millions upon millions of small changes by completely unknown people have had the greatest of impacts on humanity. So, every person reading this has the ability to make positive and lasting change a reality. Only you can change the world. That is the way it always has been and always will be. If you want a different world, you must be willing to commit to changing it in 2009 and beyond. It won't be easy. Nothing worth fighting for ever is. On that note, that we have a new President who is a great unknown with little experience may turn out to be one of the greatest upside surprises this country has ever experienced from a governance standpoint.
With this as a background we now start the year of nines.
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