Wednesday, March 4, 2009
It is always darkest before dawn and other bollocks
I am always wary of conventional wisdom when it comes pre-packaged in wisecrack sentences and is repeated ad-nauseam. One of my all time favorites was always "stocks-for-the-long-run-and-other-bollocks". The one that is in vogue these days is "it-is-always-darkest-before-the-dawn".
I heard that sentence, again, today in a conf call set up by GS's credit market team. At some point the boss of a trading desk said "as a trader, I think the market goes down, as an investor, I think it goes up" meaning that short term he is short, long term he is long. My gut reaction was to yelp "bollocks" in the middle of the street in Madrid as I was listening to the call on my headset while skating with my boys. If the traders thinks it goes down, then investors should wait. Of course another GS employee quickly warned the investors that timing was impossible and they should stage in now, one in a hundred year opportunity and that "it is always darkest before the dawn".
When despair is everywhere hope is right around the corner. Salvation must follow capitulation in a biblical, or at least a bad john wayne movie sense. Because let's face it, capitulation by itself is just too damn depressing. If the cavalry never shows up, then john wayne dies and that's no way to end a western.
I for one feel the FED is pissing in the wind, Obama is, rather disappointingly, flailing about and pussy-footing around nationalisation, money debt deflation is going on in earnest, the dynamics of depression have caught on, we may visit DOW 4000, debt moratorium will be the only exit via explicit default or inflation. Any "recovery" will be a monetary mirage, meaning GDP growth due to monetary injections. However I don't believe inflation can be manufactured at this stage, 1/ the debt deflation hole is too big, and 2/ the FED doesn't have the cojones to press the nuclear option button and start buying its own US Treasuries.
I could be entirely wrong on every single prediction. As Keynes once put it "We simply do not know". And that is about the only conventional wisdom that applies in this market.
PS: thanks to Roy for the Despair links