Wednesday, July 13, 2011


Italy bum-rushed the mainstream mindset this week and officially entered the sovereign debt discussion, as well they should. The Italian economy is bigger than Greece, Portugal and Ireland—combined.

An earnings avalanche is about to hit Wall Street; please remember that these reports represent rear-view assessments, while the stock market is a forward-looking discounting mechanism.

Field position matters; stocks that are overbought tend to get sold on good (not great) news while stocks that are oversold are typically bought on bad (not horrid) news.

Tech 2.0 is forming on the horizon, with the likes of Facebook, LNKD, Twitter and Groupon seemingly destined to become the four horsemen of tech, replacing INTC, CSCO, DELL and MSFT.

Speaking of which, did you know that those four former horsemen are all lower than they were ten years ago—after the first tech bubble burst?

The reaction to news is always more important than the news itself; that applies to financial markets, and it also applies to life itself.

The government continues to jack liquidity into the marketplace, which is why we must draw the distinction between a stock market rally and an economic recovery.

Cases in point: Housing and Joblessness, two dynamics that cannot be synthetically altered.

If you ask me, we should swing the debt guillotine, share the haircut, swallow the bitter pill and move forward as one, even if the sum of the parts won’t be as big as the whole once was— at least initially.

The real unemployment rate (including those under-employed) is roughly 16 to 20%, not the 9.2% as reported by the government.

We outsourced our middle class long ago; the friction between the have’s and have not’s is simply getting louder and more pronounced.

I think GS takes themselves private when the stock trades double-digits, for what it's worth (and no, I have no edge, just the hairs on the back of my neck).

Bill King of the King Report reported that for the week ending June 27, the Fed pumped $76 billion into the markets. A little context for ye faithful: that's the biggest increase since the days following the Lehman Brothers collapse.

One more bit of perspective; the Fed injected roughly $1 trillion of liquidity into the system in 2008. Thus far in 2011, they've synthetically sweetened to the tune of $700 billion.

So, draw the distinction between an equity rally and an economic recovery. Anyone who claims that we're out of the woods must put an asterisk on their statements until we take the true temperature of the natural, unfettered, left-alone market.

The path we take is more important than the destination we arrive at (as we edge our way towards global debt restructuring) and profitability is found in the friction between perception and reality.


* There's way too much debt in the world, and while corporate balance sheets are buff (after the government reflated equity markets to allow companies to roll debt and issue stock), either side of the debt sandwich--sovereigns above, consumers below--is unsustainable.

* There is a difference between drugs that mask the symptoms and medicine that cures the disease.

* The imbalances are cumulative still and the longer we let this snowball build, the heavier the avalanche will feel when it finally melts.

Here's why the bears are scared:

Defending the financial markets long ago morphed into a matter of national security. We're not just talking about profit and losses anymore, we're talking the security and functionality of modern day society, which is finance-based, derivative laced and extremely fast-paced.

There is a rising probability of a seismic shift in the DNA of the financial landscape, including but not limited to banning naked credit default swaps. That would trigger a massive spike in equities (akin to the short-sale ban) but would lead to a bevy of unintended consequences (such as counter-party contagion).

Much like we saw in 2008, the bears should be careful for what they wish. We're not just talking about capital preservation here, we're talking about preservation...period.

The Lingering Stealth Depression

Despite the seeming enormity of it in retrospect, the stock market crash of 1929 barely even registered for most Americans. The day before the crash, Time Magazine's Oct. 28, 1929 issue was business as usual; national stories, Washington stories, a review of the newest plays opening in Manhattan, a piece on a cat washing contest in Kingston, NC.

A week later, in the wake of the stock plunge, the cover story was as far from a piece on crashing share prices as you could get - a profile of a man named Samuel Insull, the "financial father of the Chicago opera." The crash did make the magazine, of course, second billing in the Business section in a piece titled, "Bankers v. Panic." The next piece, however, was about a $2.5 million investment by a Wall Street investment bank in orchids: "Last week, however, to the orchid industry went 2,500,000 Wall Street dollars, not squandered, but carefully invested."