from Todd Harrison at Minyanville:
“We used to play for silver, now we play for life; ones for sport and one’s for blood at the point of a knife.”
We live in interesting times. During the last two years, a financial virus spawned and infected the economic and social spheres as a matter of course.
This isn’t just about money anymore. Our civil liberties, the foundation of free market capitalism and the quality of life for future generations are dynamically shifting as we traverse our current course. (See: The Short Sale of American Icons)
I once offered that Shock & Awe was a tipping point through a historical lens; as Baghdad blew-up on CNN, I somberly sensed America would never be the same. That’s not a political statement -- we don’t know what would have been if we didn’t invade -- it’s simply an observation. Almost overnight, world empathy turned to global condemnation.
If we’ve learned anything through these years, it’s that unintended consequences tend to come full circle. Whether it’s the moral hazard of bailing out some banks, the gargantuan profits of a chosen few -- Goldman Sachs (GS), JP Morgan (JPM), Bank America (BAC), Morgan Stanley (MS), Wells Fargo (WFC) -- the caveats of percolating protectionism, or the growing chasm of social and geopolitical discord, times they are a-changin’ and it’s freaking people out.
As speculators are vilified and hedge funds are perceived as acceptable casualties of war, financial fatigue will evolve in kind. We’ve already seen the burnout manifest in trading volume -- upwards of 70% of the flow are the robots -- and we’ve witnessed it in financial media, with reported ratings of some of CNBC’s marquee shows down as much as 25% year-over-year. (See: The War on Capitalism)
Sun-tzu once said, “If your enemy is superior, evade him. If angry, irritate him. If equally matched, fight and if not, split and reevaluate.” As we navigate this socioeconomic maelstrom, an increasing number of people are weighing their options -- and some of the smarter folks I know are “going dark.”
What does that mean? They’re selling businesses, unwinding trading operations or otherwise distancing themselves from the capital markets. The thematic reasoning is straight out of an Ayn Rand novel: “I can’t compete and when I do, the rules of engagement change in the middle of the game. I’ll let the powers that be vanquish themselves and return in three to five years to sift through the remains.” (See: The Last Gasp Bubble)
The first time I heard this, I took notice. The second time, it piqued my interest. Now, with four or five savvy seers pulling the plug, I felt compelled to communicate these observations. I’m often early and sometimes wrong but I’ll always put it out there; while few are talking about this, it’s on many people’s mind.
I’ll also share that the most lucid thought I’ve had since offering in 2003 that we should "sell tech and financials, buy energy and metals and open a taco stand in Costa Rica" is to edge away from NYC. While I’m not the panicky type -- heck, some would say I thrive under pressure -- I would be remiss if I didn’t offer the respect of that honesty. I’m unsure of the genesis of this particular vibe -- quality of life or proactive self-preservation -- but the intuition is palpable and ever-present.
As it stands, I'm not in a position to do that -- this is where we are and this is what we do -- but my personal choice doesn’t alleviate the overarching societal shift or the collective tension that seems to be percolating. I speak with a ton of people in an array of industries throughout the world and "business is great" feedback is a rarity.
More often than not with increased frequency, the sentiment skews in the other direction, as do anecdotal data points such as thinning crowds at concerts and excess capacity at high-end restaurants and sporting events. There are of course exceptions -- $10 million plus homes in Manhattan are well-bid, due in large part to Wall Street bonuses -- but they’re an outlier in the broader array of our societal fray.
Last week on Minyanville, we shared the following feedback from someone within our community. And I quote:
I read your exchange on “going dark” and wanted to share some anecdotal evidence. I owned a chemical and manufacturing corporation that employed twelve people. We sold the company in October, 2009 for three reasons: expectations of higher future tax rates (income and cap gains), lack of clarity in regulations and the perceived coming wave of governmental policies.
Looking at that last sentence reminds me of why we decided to take our cards off the table after a successful run; the words EXPECTATION, CLARITY, and PERCEIVED.
All of these lead to one thing -- uncertainty. It was hard enough to make a dime with the relative stability of the previous period. Change the operating environment and in my mind, you change the probability of success. Smart people (being presumptuous there!) don’t wager in that environment!
Now, I’m not suggesting we cower in a corner, buy guns and butter and get all Mel Gibson on each other. Further, I understand most folks aren’t in a position to seize the day and walk away. I’ve written in the past that if we’re not part of the solution, we’re part of the problem and that remains true, now more than ever; society, at the end of the day, is simply a sum of the parts.
As we wrestle with reality and attempt to operate in the best interests of ourselves and those we love, some have chosen to extricate themselves from an increasingly tenuous struggle to focus on the little things in life. I suppose they’re lucky to have that option and their actions are consistent with a widespread reprioritization following the Great Recession. I’ve written about them before; net worth vs. self-worth, having fun vs. being happy and the caveats of looking for validation at the bottom of a bank account. (See: Memoirs of a Minyan)
For those motivated to power through to better days and easier trades, the actions of a few effects the lives of many; we, the people, need motivated, innovative proactive problem-solvers to remain engaged as the second side of the storm approaches. While our financial equation is multi-linear and ever-changing, my sense is that we’ve got four to five years of perseverance and preservation as a precursor to the profound, generational opportunities that will emerge thereafter. (See The Eye of the Financial Storm)
Looking at this emerging trend of “distancing” another way, we know the opposite of love isn’t hate, its apathy. Through that lens, folks walking away from the capital market construct may indeed be another step in the steady migration from what was to what will be. We often say the leaders who emerge from the crisis are rarely the same as those who entered it. At the very least, it should be noted that several former leaders have removed themselves from the running.
May peace be with you.
R.P.
