As I have had frequent houseguests over the past two weeks, I finally got around to cleaning the joint. The primary activity in this endeavor: clearing the stacks and piles of books around the apartment. During the course of the project I found a copy of EdSpec and put it aside to put back on the bookcase. Naturally it remained on the table for the duration. Last night, after a typical mid Atlantic August weekend of fast boats, loud music, cold beer and hot women, I found myself sitting on the couch, a nightcap in hand, perusing the pages of this classic once again. As always, it triggered many thoughts, especially the section on market ecology.
Many talk of how closely the market follows nature, with predators (hedge funds, large traders) and prey (the public, mutual funds), the inevitable cycle of boom and destruction, those who feed off the destruction (short sellers once a decade and distressed funds), those whose existence depends on their ability to nimbly dance around the large dangerous beasts (sharks and pilot fish, the oxpeckers that flit around rhinos) that remind one of arbitrage traders. Perhaps not perfectly but to a large degree, nature is replicated in the stock market.
So here we are now, in the sweet spot. The grass grows lush upon the plains, the forests verdant and full of life. The grazers are well fed and the herd grows with plenty of food and positive 410k statements. The predators feed with ease picking off the weak (dollar shorts and bond shorts). We've been here before many times. The careful observer and participant knows that at some point, the fire (geopolitical event), the flood (sudden spike in interest rates) or sandstorm (oil prices) could come along and wreak the traditional havoc needed to sustain markets and ecologies alike for the long term. The undergrowth must be burned off lest it choke out the forest, the herd thinned lest they eat themselves into drought. It is the way of nature.
I examined market selloffs and storms over the past 30 years. In every case, there was an event, a warning that allowed one to seek higher ground. The April '87 interest rate spike, the US Air takeover in '89, H#llary's healthcare and the Fed in '93, falling earnings in '00 are a few examples. The browning of the grass portends a fire (slipping earnings), the darkening sky (Fed tightening) a possible storm. In virtually every major selloff, the market was in fact high by traditional measures (price to earnings, price to book, dividend yield etc). However (and this is where a lot of the current "market too high" crowd is off base) they had been that way for sustained period of time. Just reaching overvalued is not enough. Something has to happen to upset the balance. I originally thought prices would tell us, that the first 5% down month in the market preceded further sell offs. As Primal Scream would say: wrong. With the exception of the 2001, the market has been higher six months after a 5% decline in every case since 1980). The grass grows too high, the predators too fat; nature will correct but not until there is fodder for a fire, or sufficient moisture buildup for storm-causing flood. The fact that it's going to happen does not mean we should take all our money out and start starving today. Today, we continue to feast, we watch the skies. We map out the trail to higher ground for a fast exit, we guard our stockpiled reserves. But we feast while we can. We observe the Fed, the supply of IPOs, and may other factors, but we stay long until the storm approaches. The feast most often continues long after the gloomy boys slipped a few dinner rolls in their pockets and left the party.
Of late on the list we have discussed eBay practices, the usual mix of reports and ratios and even a smattering of bbq (although with some of the froo-frroo things you guys do on a grill I surprised the voo-doo prof has pulled up on his Ducati and confiscated your charcoal..remember...dip it, paint it, burn it, eat it) but very little of two subjects that were an integral part of the original charter and mandate of the list…books and music. Last year when I put out a call for book talk we got a great response and all added to our reading list to our mutual benefit so I thought I d try it again...with a twist. We all read non fiction and finance all the time. History, biology, markets, economics…we have it coming out of our ears. So lets try something different, again hopefully to the enjoyment and benefit of all. I suggest we all take the time to list the 3 authors we read STRICTLY FOR FUN. I'm talking lazy day in a hammock or rainy Sunday at home and the cable is out, Relaxation and escape type stuff...guilty pleasure reading. In addition, to bring music back into the fold lets each list two recordings we consider classic, must own recordings...any genre. I suggest we omit Atlas Shrugged, Fountainhead and Don Quixote. We all already know those are the best fiction reads for specs. Naturally I'll go first.The undisputed all time favorite read is the John D MacDonald Travis McGee series. Taking early retirement aboard the busted flush ( a houseboat won in a poker game at the Bahia Mar Marina) next to his economist friend Meyer, McGee finances his life of leisure by recovering valuable items lost for a percentage. Soaked in Plymouth gin, bikini clad women with the morally casual attitude I do so adore, Travis goes through life his own way picking up a few bruises and a deep water tan along the way. Amazingly for what could well be considered trashy mystery novels by some there are life lessons contained herein. Travis McGee is the embodiment of independence and using ones brains and skills to earn his own way, asking nothing of on one ..and check out these gems.You can be at ease only with those people to whom you can say any damn fool thing that comes into your head, knowing they will respond in kind, and knowing that any misunderstandings will be thrashed out right now, rather than buried deep and given a chance to festerI do not function too well on emotional motivations. I am wary of them. And I am wary of a lot of other things, such as plastic credit cards, payroll deductions, insurance programs, retirement benefits, savings accounts, Green Stamps, time clocks, newspapers, mortgages, sermons, miracle fabrics, deodorants, check lists, time payments, political parties, lending libraries, television, actresses, junior chambers of commerce, pageants, progress, and manifest destiny.Education is something which should be apart from the necessities of earning a living, not a tool therefore. It needs contemplation, fallow periods, the measured and guided study of the history of man's reiteration of the most agonizing question of all: Why? Today the good ones, the ones who want to ask why, find no one around with any interest in answering the question, so they drop out, because theirs is the type of mind which becomes monstrously bored at the trade-school concept.There are 21 Mcgee books in all. Lots of open water, cold gin, beautiful willing women adventure and even a few meals for a lifetime.Second. In keeping with my generous nature I'll leave the Robert Parker books for Crossman to select so I'll go with the Randy Wayne white doc ford series... Doc Ford is a quiet man, wishing only to be left alone collecting samples for his Sanibel marine biology company, selling to labs and schools, conducting experiments with tarpon and sharks, living in the Dinkins bay marina with the eccentric collection of fishing guides and live aboards such as Tomlinson the new age guru and perpetually stoned genius who is docs unlikely sidekick…a peaceful existence until someone Doc cares about is threatened... then he reverts to the Marion Ford trained by the government as a covert operator and assassin. Full of roustabouts, boat bums, high adventure with some science and romance thrown in they are probably the modern day equivalent of the Mcgee series... with a bonus factor... white is a damn good writer and uses his skills to weave brilliant stories that are a pleasure to read.My last selection is the guiltiest of literary vices. All of The WEB Griffin books. Griffin is not a writer. He is a storyteller and a masterful one. He writes primarily war stories and he is a master. Clancy may know the technology but Griffin knows the stories. I've read every thing he's ever written(33 books so far) and always buy the new ones on release day. To date my favorite series are the corps, a serial novel over 10 books so far of WWII, not the Korean conflict. The characters are the manliest of men capable of killing the enemy, advising the president and winning the dame without spilling a drop of famous grouse over ice( and yes his writing is where I discovered this now household staple... maybe not a lesson for a lifetime but damned good scotch). The Badge of honor series set in the Philadelphia is probably the series I d choose second but all the books are good stories. Griffin keep his histories and timelines accurate and weaves such luminaries as Roosevelt. McArthur and Wild Bill Donovan easily into the plot. The men are brave and determined, the women are beautiful and saucy, the stories, while not great writing, are great reading.Now music... first the album I consider the greatest rock and roll album ever recorded. Bob Dylan's Blood on the tracks. Its poetry, poetry written during a time of self introspection and failed romance. The music here is primarily acoustic and the lyrics poetic geniusShe lit a burner on the stove and offered me a pipe"I thought you'd never say hello," she said"You look like the silent type."Then she opened up a book of poemsAnd handed it to meWritten by an Italian poetFrom the thirteenth century.And every one of them words rang trueAnd glowed like burnin' coalPourin' off of every pageLike it was written in my soul from me to you,Tangled up in blueMy last musical choice... Miles Davis, Kind Of Blue. This record defines jazz as far as I'm concerned and strikes me as a painting with musical instruments. The band with Cannonball Adderly and John Coltrane on sax and Bill Evans on piano is a who’s who of the 1950’s and 60’s American jazz science... tough call between this and birth of the cool but kind of blue gets the final nod.