“I am a sick man. I am a wicked man.”
So opens the Dostoyevsky novella Notes from Underground. Sometimes I seem to be caught in a similar existential trap as I analyze the global macro data and fundamentals. I am sick because I continue to pursue the opportunities that explode before me. I have taken a turn for the worse and become sick because of the constant flow of manipulated headlines crafted to purposely activate the trading algorithms. Tweets and headlines with no context have become the coin of the realm, especially for high frequency trading operations. But their role in the market jungle does little to dissuade me from honing my craft. The bottom line: Greater preparation and more patience is needed.
This view was succinctly summed up in an October 2017 Barron’s article by John Curran, a former partner at the great firm of Caxton Associates. The article, “The Coming Renaissance of Macro Investing,” was written in response to the frustrations of trading in the world of headlines rather than the deep perspective of political economic fundamental analysis. Curran concludes the piece with this nugget of wisdom:
“As my mentor Bruce Kovner used to say, ‘Nobody rings a bell at key turning points.’ The ability to properly anticipate change is predicated upon detached analysis of fundamental information, applying that information to imagine a plausible world different from today’s, understanding how new data points fit [or don’t fit] into that world and adjusting accordingly. Ideally, this process leads to an “aha” moment, and the idea crystallizes into a clear vision.”
This is what NOTES FROM UNDERGROUND strives to do. It is where we thrive to discover the unbalanced world of 2+2=5. You do the math.
***Let me proceed with my screed against the bumbling Treasury Secretary Steve Mnuchin. After I wrote my last post, Mnuchin proved his ineptitude by panicking in the face of stock market weakness and leaking to the press that he had called the CEOs of six major financial institutions inquiring about their financial and liquidity situations. All provided a rosy outlook providing Mnuchin to announce that there was no fear of a financial crisis. Stock markets were in the thralls of “fake concerns.” The problem that Mnuchin failed to understand was two-fold: One, it was not a financial crisis concerning the Dow but a crisis of confidence in the executive branch. And two, by raising the issue of a financial crisis Mnuchin himself was exacerbating the situation.
The Treasury secretary was attempting to take a page from the Greenspan playbook of LONG-TERM CAPITAL MANAGEMENT when the markets were needed to be secure in believing that the Fed and Treasury were managing a potential liquidity crisis. In this case, it was the wrong strategy, which immediately caused the markets to fall. Mnuchin felt he had to do something and that resulted in the most negative of outcomes.
One last thing about the Treasury secretary. There was a Bloomberg story on December 18 titled, “Mnuchin Blames Volcker Rule, High Speed Trading For Volatility.” The Secretary incorrectly promoted the idea that a rollback of the Volcker rule along with greater SEC control over HFT would lessen the recent volatility. Mnuchin said, “In my opinion, market structure has led to a lot more volatility. Part of this is a combination of the market presence of high-frequency traders combined with the Volcker Rule.”