And so here we are..., October 19th, a day of lore for historians galore. Indeed, talk about large moves of late and the conversation will likely focus on the upside. It’s human nature to discuss rewards after large rallies and risk management when losses mount. That’s the root driver of momentum investing and the self-fulfilling nature of the beast. The only difference between mistakes and lessons is the ability to learn from them. It is in that vein that we’ve paid homage to the crash with first person perspective.
Alan Greenspan, widely perceived to be finest Fed chair in history, weighed in to say that he was completely blindsided on that fateful day. Despite being the first line of defense, he simply didn’t see the supply mounting in the distance. Hank Paulson and Ben Bernanke, after poetically waxing for months that sub-prime was “contained,” quickly realized that it wasn’t. And when those thoughts crystallized, they unleashed the proverbial hounds.
We can talk about the tangible costs to investors, as measured by a 5.5% drop in the dollar since August. We can noodle the intangible ramifications of their credibility or the waning patience of foreign holders of dollar-denominated assets. We can discuss all of these things until we’re blue in the face but the simple fact is that everything is funny while you’re making money. Even if the currency itself is slowly fading away.
I’ve always said that, as a trader, I’m not as concerned with our destination as I am with the path taken to get there. I must admit, however, that I am increasingly concerned with our collective destination. If not for my sake, than for my unborn children and their children. Indeed, for many people in the U.S. and throughout the world, the recession is already in full swing.
I often ask myself if my concerns are unfounded and if I’m completely off-base with regard to the percolating pressures. I hope I am, but I fear I’m not. More likely, the structural imbalances are cumulative, which is to say that the longer we push out the cyclical ebb and flow of the business cycle, the harsher the other side of that trade will be.
Ben Bernanke and Hank Paulson are no dummies. They understand that in a finance-based, debt dependent economy, we’ve already passed the point of no return. That’s why they shifted the rules at the discount window and jump-started “The Working Group for Financial Markets.” They know the stakes and they’re fighting for their livelihoods and legacies.
On this, the 20th Anniversary of the Crash, please take a moment for a pause of reflection. The day of reckoning may not be at hand but there is risk in pretending that it doesn’t exist!
For if we’ve learned anything in the markets and in life, it’s that those who ignore history are destined to repeat it.
Melodies of love.mp3.http://www.delmonticossalon.com/media/Joe_Sample_-_Melodies_Of_Love.mp3
2 comments:
Have you ever heard the term; "a perfect storm"? In 1928 a perfect storm formed and devastated this country and the world. It was a combination of poor political decisions, the economy going bad, a stock market crash, and the dust bowl in the midwest. Today we have poor political decisions, the economy going bad, a potential stock market crash and an extreme drought in the southeast! Unfortunately everything DOES come around again, no matter how hard you prepare and try to protect yourself. Things change enough that new problems that aren't planned for replace the old problems that were. All the protections, buffers, and laws that were enacted or created after the Great Depression don't cover a lot of the problems, manipulations, and dangers of today. The old saw is still true; "Those who don't learn from history are doomed to repeat it." (Santayana) We stopped learning and we became vulnerable to those who think they are smarter, more powerful, and/or above the law. And we may be facing "a perfect storm" on the horizon.
When you consider the financial condition of the U.S., logically the markets should correct. The mass of consumer\govt debt hanging over our heads and the continual loss of jobs to nondomestic outsourcing has left our economy in a precarious position. It's not going to take much to open the flood gates of economic disaster. The Fed came to the rescue in August\Sept with rate cuts, but at the cost of further devaluation of the dollar. What's going to happen when our foreign\domestic benefactors get tired of watching their investments in U.S. dollars sink? For the time being many of these cheap dollars have found their way into the U.S. markets, but the owners of those dollars may decide to take their money and play elsewhere.
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