Change of Plans

We are adjusting our outlook heading into Q1 2015. From our original belief that "Things would kinda sorta work out" in 2011 to last year's "MOTS - More of the Same"; we have occupied rare space for us - optimistic and constructive. We continue to ride the ripples of a post-financial crisis Structural Trap and global capacity glut we've labeled "Too much everything.." My best call of 2014 was against the well hyped views that 1) "oil was a buy above $100 "because the economy was growing" AND 2) "The falling price of oil is 'bad'". Never underestimate the idiocy of weak economic thinking mixed with a graphic of yesterday's price action.

I was very wrong on market rates rising. The shape of the curve - flatter - bailed out the poor call on an execution basis. Being "right" for the "wrong reasons" is the last bastion of a scoundrel, however. The 5 year is on the high side of a boring 3 point range for the year ! The 10 year is $6500.00 dollars better for a contract. The long end is considerably higher in price. Last Summer, we recognized that owning bonds for any and all reasons was/would be part and parcel of the protracted period that marks a secular apex. Spurned at 15% in 1984 as "certificates of Confiscation" and adored today.

We believe BOTH equity (especially tech) and F.I. are headed for rough weather. The adjustment will come in 2 phases. The first will be the exciting market declines. The precarious situation in Europe, and the annual calls for Chinese collapse, egged on by a ratings starved media, will produce some sketchy sessions. The second, and much more difficult phase, will be the realization that outside of San Francisco real estate and some Wall St. IB activity won't matter. The importance of "the Millenials" will be swapped for the demographic tidal wave of the retiring Boomers. A plethora of participants that criticized the Fed's actions as ineffective will, like Vladimir and Estragon, yammer away waiting for Janet Godot.


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