High Frequency Swanning – The Crash Camp Takes Over
- Joshua M Brown
- May 18th, 2010
Here a Swan, there a Swan, everywhere a Black Swan…
Newsletter writers, hedge fund managers, journalists, bloggers, technicians, fundamental analysts, economists and strategists are joining the crash camp left and right. Not the bear camp…the crash camp.
I’ve been running around Manhattan all day taking care of business, meeting clients etc. After scanning today’s articles and blog posts, I can honestly say that I’ve never heard more chatter about an imminent market crash, all at once, in my life. It’s like the May 6th Flash Crash got everyone in the mood to talk cataclysm all of a sudden.
I’m not one of those guys who takes everything as a contrarian signal. I abhor knee-jerk contrarianism. Samuel Lord once said “Do not choose to be wrong for the sake of being different,” and I think that’s kind of apropos here.
As avowed contrarian Dougie Kass likes to remind us, the crowd usually outsmarts the remnant when herd mentality takes over. So what is the herd hearing/ seeing?
* First of all, the macro guys are disturbed by the Euro Zone’s crisis and its ripple effect/ contagion risk. This isn’t new but it is more pervasive. And the possibility of a China collapse scares the hell out of almost everyone.
* The technicians and Dow Theorists are grossed out and have dusted off all the 1937 charts again. Specifically, they are looking at the highly distinct pattern of a big drop (May 6th) followed by a failed rally (euro bailout day’s 4% gap open) followed by another fast sell-off. Richard Russell‘s latest missive, in which he tells us that we won’t recognize America by year’s end, will make you want to kill yourself.
* Equity analysts are all pointing to year-over-year comps which will start getting harder now. They may feel OK about the “E” but they’re shaky about the “P” – will the tax hikes and regulatory headwinds we now face really allow for a high-teens multiple on whatever the earnings turn out to be?
* Bond guys are freaking out about sovereign stuff, obviously. We’ve transferred corporate risks onto government balance sheets with bailouts, the Piper still awaits his payment in many cases.
* Eddie Elfenbein posted the results of a CNBC poll yesterday in which 40% of respondents predicted a 50% haircut for the Dow. Seriously, almost half the respondents predicted Dow 5000 by the end of this year.
* The hedgies are vocally bearish again as well. Seth Klarman‘s got some cautious commentary out today and Jeremy Grantham‘s “sell everything” stuff is being quoted everywhere. Raoul Pal put out a newsletter this week with a 2 day-to-2 week crash prediction.
We’re not talking garden variety bearishness here. We’re talking about ubiquitous crash predictions. My comment is that I’ve never seen so much certainty in so many places of a coming crash. Will it be self-fulfilling or are we talking major contrarian signal?
Worth noting no matter what.
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1 person liked this. hey Josh. most excellent work as always. This one had me chuckling at“Richard Russell’s latest missive, in which he tells us that we won’t recognize America by year’s end, will make you want to kill yourself”
With such strong vocals on crashing isn’t that when it will do exactly the opposite and place the hydraulic vice on the bears head once again? Don’t get me wrong, I am of the belief that there remains significant downside coming – timing being the key – but I cannot get past the mountainous debt across the globe, the complete lack of any reasonable and practical debt-credit-value relationship.
Keep up the awesome work! Tomorrow is another trading day.
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Things fell apart during the Depression, so we implemented entitlement programs and erected new regulatory bodies. Things came together. I argue that the only reason we’re not in another Great Depression today is the post-Depression social safety nets that now provide unemployment insurance and a baseline of health insurance to our elderly and most financially vulnerable citizens. But since we essentially dismantled Glass-Steagall, and financial mathematicians developed products that were unforeseen by jazz era regulators anyway, we produced fake wealth and things fell apart again.
When we can accept the falling apart and coming together of all things in life, we can look at the work before us as an opportunity to build something stronger and better for the next iteration — until it inevitably falls apart again.
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http://finviz.com/futures_charts.ashx?t=DX&p=w1Like Reply Reply
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Good read… I’m not quite as fatalistic but I do feel there could be another serious correction in the near future.
