Wednesday, August 29, 2007

Queasy Sights

Anyone who has spent lots of time on boats (particularly oceanic offshore swells) with those who have not or with whom it simply disagrees, will know the unmistakable tell-tales of seasickness. First the colour disappears from the suffering one's cheeks. They appear listless in posture, staring into the distance. They hug the sides or rails to provide them with a reassuring proximity to the sea in order that they not embarrass themselves in the event of ummmm an event. Then, they point their nose to the wind desperately hoping and praying that the unsettled feeling that they are going to imminently vomit will pass. They slouch yet further, appear even more pallid - even green. Then, in an involuntary spasmodic contra-digestive ballet, the afflicted sort of weave and wave back and forth trying in vain to hold in what must, against all decorum and effort, come up and out, in a violent, but ultimately cathartic LIFO explosion. This is NOT a pretty site if the afflicted were consuming beer and Cheese-Doodles before they were overcome by the need to involuntarily regurgitate.

Markets, particularly the onset of bear-markets, I would argue, repeatedly display certain similar tell-tales. These may not be readily reducible to numeric formulas, or DeMark counts, but one can often distinguish them when they encounter them, much like the sea-sick would-be sailor. Some are particularly adept at recognition in a BLINK! kind of way. And others seemingly do it more or less continuously. But whereas the human body is bounded by a limited set of vital signs, and the swell of the ocean and rocking of the boat induces a more or less consistent interaction and reaction with the our biological constitutions, financial markets are dastardly complex, rarely if ever invoking precisely the same set of interactions between variables, with the importance of variables themselves evolving dramatically over time. And perhaps the biggest mind-fuck is that markets typically play out over much longer periods, with innumerable traps along the way that plausibly attempt to sway opinion or cause even the most detached observer to waver in her conviction or investment plan. Nonetheless, keen observation, experience, distillation, coupled with constant re-examination, and perseverance can allow one to filter the noise and essentially achieve the same result as looking at the soon-to-be-seasick sailor and correctly forecasting the technicolour yawn about to ensue.

While Lance Armstrong is reputed to have oxygen-carrying arteries the size of a thoroughbred and Roger Federer is (according to sports physiologists) reputed to have a uniquely broad range of motion conferring physiological advantage, one might reasonably look back at Wayne Gretzky and wonder what it was that made this small and slight Canadian probably the greatest hockey player who ever lived, for on the surface it wasn't a physical advantage, in most physical of sports. I recall in an interview, that he described it as vision. To someone who is not an aficionado, ice-hockey is mind-blowingly rapid and chaotic, even for those that skate. But to Gretzky, he apparently sees it all in slow-motion. He is able to visually take it all in and sub-consciously and effortlessly anticipate where and what everyone will do next, adjusting and responding to optimize each turn, movement and pass of the puck. For he wasn't not faster. He just thinks, and responds quicker and better. But for purposes of analogy, I am taken by the concept of seeing with extreme-clarity, in slow-motion, something incredibly noisy, chaotic and complex.

I am no Gretzky, nor do I fancy myself as one. But I do have reasonable and deep experience, and I do ruminate upon events, markets and the macro-economy at length from a position both above and within the trenches, and for what it's worth I have this uncanny feeling that I am seeing this cycle and this probable cyclical and market-top evolving in slow motion in almost picture-perfect fashion, the kind that financial historians will be able to aptly describe while posing the question "What the fuck were they [the leveraged speculators and providers of credit of the era] thinking?!??"


Akhond said...

Great post Cassandra, but you seem to forget that this is the age of Viagra, where what goes up stays up. There's a new drug that claims to do the same for financial markets---it's called the Bernanke pill.

Manc Trader said...

Good post. Quick question what are your views on the Yen and Japanese equity market?
Obviously equities are globally correlated but do you see any reason for relative strength in the japanese market or its just part of the ongoing implosion.
Or do you have to subdivide between consumer stocks such as Toho and the global players like the big komatsus Marubenis, and toshiba plants.

Manc Trader

"Cassandra" said...

manc trader,

contrary to those who believe there is secular diminshing home-bias trend, I more cynically believe people are just chasing return, and doing it through packaged product that promises higher yield (albeit with excessivbe IMHO risk). For I do not believe that ZIRP is sustainable, and in a global deflationary world, Japan is probably less leveraged and more stable offering relative outperformance on the downside - for YEN especially , but also stocks. IF global status quo holds (continued low-inflationary USD reserve accumulation without recession) then both yen & nikkei underperform higher risk assets. Japan is essentially a very low-beta stock (despite 10% drop last week) with some superior SOV characteristics on the way down given gloval investors generally underweight position there in BOTH Nikkei & Yen.

At the individual security level, because the market is less liquid in terms of participation, AND because the largest marginal foreign investors (both HFs & particularly Long-only e.g. Cap Research & Fido) with positions of 15% de facto control something like 50% of the traded float, have enormous impact both relatively and absolutely. With liquidity narrowing, these marginal impacts upon relative out- and under-performance are likely to be sustained, and so if these guys fancy something, it is (at present) a mugs game to short against them, and if they are liquidating, you better be certain they are nearly finished or else you might end up OUCH! being 50% early.

As for restructuring and asset co's, there is little practical chance of radical shareholder realization in the imminent future. Bulldog and TOC are cases in point. Not that dividends won;t increase, or shares won;t be bought back, are consolidation take place. It just will happen at Nippon-speed, and where possible in a way that doesn't enrich "Gaijin Abusive Acquirors" at the expense of the wah of TeamJapan.

Charles Butler said...

Lost in the the stellar goal-scoring stats of Wayne Gretsky is the fact that his real strength was as playmaker - his nearly 900 NHL goals more than doubled by his assists. (All of this overshadowed by the nearly 400 he scored in one season as a ten year old, catching print throughout the moral high ground). Aside from seeing it all in slo-mo, he also had an uncanny, clairvoyant knowledge of where players upon whom he had not set eyes since leaving his own zone were located, allowing him to blindly and routinely pop the puck onto their sticks.

On the minus side...

He was, for whatever reason, never, ever beaten up on or molested by the opposition goons during his entire career. A bit of a wuss in a land where men are etcetera blabla.

His greatest years were played for a pathetically dominant team (Messier, Coffey, et al) in a division populated by the dregs of the WHA. It wouldn't have been so easy playing in the east.

In direct contrast to what Wikipedia says about him, I assure you he was of no identifiable utility to his own once the other team got hold of the puck.

My vote stays with Mario (useless for didactic purposes herein, I admit) who did all of the above plus knew how to get down and dirty. Me old school.

He found it, if possible, more difficult than the average Ontarian to pronounce a clear and distinct letter 't'.

And speaking of wussiness, a short memory refresh turned up the following...

I can see Maurice Richard hugging the rails as we speak (although the blancs from the region are more than palatable).

"Cassandra" said...

Mario Andretti had "the next big idea" which was to sell (ahem) upscale wine to the PWT NASCAR set. I laughed when I saw that (borderline snob that I am) but know not how he got on with his plan. At the risk of displaying my age, I went to the 1975 Red Army game vs. Phila Flyers (Kharlamov, Tretiak vs. Broadstreet Bullies) where teh Flyers took em (physically) to pieces such that Russkies wouldn't come back onto the ice after intermession, and only relented when NHL director told them they wouldn't get paid if they didn't get back out and play. Of course Ballard didn't even let the godless commies play in his beloved arena. Very un-Canadian...

Charles Butler said...

Running the same risk, the hockey player you would want managing your pension plan is, beyond a doubt, Bobby Orr.

Harold Ballard's (Toronto's most hated for selling the Leafs to the west and killing the Munchyawl-Trawna rivalry) most famous quote? "A woman's place is on her back". They day he got sent up for tax evasion, there was dancing in the street. But yes, I saw the Red Army play before he took over.