Todd Harrison Refuses To Drink The Kool-Aid With "Ten Reasons Why This Is Not A Bull Market"

Tyler Durden's picture

Minyanville's Todd Harrison is the latest to jump on the bandwagon for whom a "sideways or slightly down market" is not a victory for the bulls. In fact, Todd is outright bearish, and harkens to his prophetic call from September 2008 (oddly, a time when CNBC programming was far more balanced yet when everyone still thought the worst was behind us and Dick Bove had just issued a buy rating on Lehman, not to mention that every phone call from David Einhorn was being tapped under the guidance of the powers that be). Harrison prefaces: "Kevin Cassidy, a senior credit analyst at Moody’s, recently referenced the $700 billion in risky high-yield corporate debt on the horizon and offered, “An avalanche is brewing in 2012 and beyond if companies don’t get out in front of this.” Minyanville
offered a similar assessment entering September 2008 as $871 billion of
corporate debt was set to mature into year-end. We opined there were
two plausible scenarios; a credit cancer that would chew through the
financial body, or a car crash that would crack the system under the
weight of an indebted world." Todd was spot on back then. Will he be right again?

From Minyanville:

1. Questions remain on a Greek aid package in front of €20 billion in debt
that comes due in April and May. This dynamic is not bound by borders;
should an accord be reached, as expected, the approach will be tested
when the next “lifeguard” begins to drown. See A Five-Step Guide to Contagion.

2. New health care legislation could add hundreds of billions of
dollars to already yawning budget deficits. That chasm can only close
through upward taxation or austerity initiatives; neither is pro-growth
and both drain consumption. This, of course, comes at a time when the
“interconnectedness” of governments and markets has never been higher.

State budgets are cracking and a recent report from the Pew Center
estimates unfunded pension liabilities are an eye-popping $452 billion.
While I expect a Federal bailout package, as discussed in January, it’s akin to moving money from one pocket to the other. For more, read Ten Themes for 2010.

Social mood is tenuous at best and deteriorating at worst. As The Great
Divide continues to evolve -- Red States vs. Blue States, Main Street
vs. Wall Street, Have’s vs. Have Not’s -- societal acrimony has evolved
into social unrest in some parts of the world, and economic hardship is
pointing an unfortunate needle towards geopolitical conflict.

5. Complacency abounds, as measured by traditional volatility measures such as the VXO.
While we’ve witnessed prolonged periods of subdued volatility
(2004-2006) and healthy debates rage regarding the indicative validity
of this measure, risk premiums are at levels last seen in June 2008 --
a few short months before the financial crisis arrived.

6. From Google (GOOG)-China to USA-Toyota (TM)
to EU-Greece, the seeds of protectionism continue to sow. That
posturing is on the opposite end of “globalization” on the prosperity

7. While the “stated’ unemployment rate hovers just below 10%,
almost one-in-five Americans is underemployed; that means they’re not
working, stopped looking, working below their abilities or working
part-time because they can’t find full-time employment.

8. From an economic perspective, interest rates
have one way to go, price-to-earnings multiples never troughed, and
debt-to-GDP ratios will approach or exceed 100% in all G7 countries by
2014, with the exception of Germany and Canada, according to John
Lipsky at the IMF.

9. The Congressional Oversight Panel
warns that commercial real estate losses at banks alone could reach
$300 billion starting in 2011. Almost half of those loans are
concentrated at smaller institutions with total assets under $10
billion, and those are the same banks that account for almost half of all small business loans. See also What to Expect from the Commercial Real Estate Crisis.

It’s easy to forget about the housing crisis; in terms of “what matters
now,” this concern almost feels passé. We must remember that massive
amounts of residential mortgage backed securities are mis-marked at
best and toxic at worst, sitting on the balance sheets of private and
public institutions and by extension in bank accounts across America.
This is in addition to the manifestation of under-water mortgages
(negative equity) and foreclosure trends throughout the land.

Harrison's conclusion and near-term views:

Do I think the system is broken beyond repair? No, I believe there will be massive opportunities once we’ve taken the medicine of debt destruction so long as calmer heads prevail. Also read The Great Expression.

That could take another five to seven years but it’s difficult to foretell; a lot depends on how we navigate a multi-linear dynamic that includes currency readjustments, the evolution of credit, $500 trillion of global derivatives, two-sided regulatory reform, the shifting social mood, geopolitical fragility, and trade relations.

Is it possible we “echo” higher before that comeuppance arrives? Sure; these aren’t natural markets anymore and we must respect both sides of the financial equation. Given the path we take trumps the destination we arrive at, there’s only one way we can reconcile these seemingly disparate data points: Carefully, and one step at a time.

If you asked me for my near-term opinion, I would offer that the tape tops out before quarter-end under S&P 1200, consistent with the path of maximum frustration as fund managers reach for performance. Remember, when S&P 1150
was surmounted, a lot of shorts covered, removing a natural layer of
forward demand. From there, we’ll monitor the second quarter flows,
which should help shape the tape into the beginning of April.

We certainly agree with Harrison's observations. And a quick note: it is not our desire to see the market crash. Far from it. We just know too well that castles can not be built in the air. And that for a true economic recovery to commence, with or without the participation of the market, everything that has been done so far since the days of September 2008 has to be undone. Alas, with each passing day, this is becoming more and more impossible, while the day of correction is getting closer and closer: there is only so far any physical system can move away from a state of equilibrium before it resets. As the recent swap spread inversion demonstrated, unpredictable events will pop up increasing more often as the Fed's central planning doctrine become the de facto norm for market control. And one of these days, the next "side effect" will be one which even a supercluster of SPARC computers mutually front running each other will be unable to resolve.

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Bam_Man's picture

Did Harrison actually write that? If so, it is by far the clearest, most coherent thing he has ever written. As opposed to the usual string of barely comprehensible and too-clever-by-half riddles that I had come to expect.

HEHEHE's picture

I think you are confused with his daily market banter articles, which are all over the place, and his occassional editorial pieces like the one above. 

Cognitive Dissonance's picture

I've been a Harrison fan for years and years but I finally stopped reading him (I still check in now and then to keep up with his thoughts) after I realized he would never speak real truth to power. He only goes so far, which draws a crowd and burnishes his credibility. But never too far. Harrison is growing a business over at Minyanville and thus can't upset too many apple carts. His constant insistence that we be "positive" means that we can't really discuss crazy Aunt May in the attic because to do so would be "negative." What it means is more of the same when the victims decide among themselves not to talk about being raped and beaten, at least not to loudly.

Don't get me wrong, I have a lot of respect for Harrison and I think he has a good feel for the markets. His basic market philosophy is sound. But he's an appeaser. He doesn't wish to rock the boat too much, thus enabling the masters to continue to rape and pillage. His fear of "social unrest" (the ugly abyss) is so great that he's willing to tolerate some continued rape in order to live a bit longer. He still believes the system can be reformed from within, a position that fits nicely with his business plans and his personal wealth. I understand the position but there is a time when you must stand up and say "NO MORE".

girl money's picture

If Minyanville ever gets their own network, CNBS is finished.  We go to CNBS for the scroll, we go to ZH and other sites like MV for the TRUTH.

Plus, Hoofy and Boo are SO much more entertaining than Kudlow and Cramer.

bchbum's picture

Never happen.  They would have to get on basic cable and now that comcast is part owner it will never happen.  Look at FBN or Bloomberg.

ratava's picture

We are not high enough, wait until dow 11242 with your short.

dumpster's picture

why not short at 11241

ratava's picture

sure, that would work too. my logic is 11242 is 61.8 retrace of the big drop and likely stop loss for a big part of the shorts accumulated at current levels close to 50 retrace. ben and his magical printing press can take us there

JackTheTrader's picture

"Sure; these aren’t natural markets anymore and we must respect both sides of the financial equation."  Well written.

rubearish10's picture

TD, it is a shame that we must defend our formula to "right" things. It seems so distorted that it takes so much care to speak the truth and attempt to disclose facts on the media perimeter. 

I commend you, your staff and contributors for plowing thru the swamp we call society and help identify for us the hope and potential for future prosperity and even perhaps a revival of what we once knew as good old fashioned "but mindful" finanical prudence! Right on Brother!

scipio_africanus's picture

I have to agree. ZH is one of the few places to get insightful commentary that is backed by real numbers. Keep up the good work. Those of us on ZH are worlds ahead of the sheep. Everything that Harrison lays out in this article is undeniable.

buzzsaw99's picture

...these aren’t natural markets anymore and we must respect both sides of the financial equation...

it is a squid market. is not our desire to see the market crash. Far from it...

I don't want to see the pension funds wiped out either, that sentiment is one reason why the squid has this country by the ballz tho... 


Cognitive Dissonance's picture

"I don't want to see the pension funds wiped out either, that sentiment is one reason why the squid has this country by the ballz tho..." 

In the face of absolute evil, it's only when you have nothing left to lose that you'll do whatever is needed to win. Until that point, you're simply feeding the beast and extending your torment. Once the decision is made to face the beast, the beast will quickly evaporate into nothingness. It is our apathy and enabling behaviour that gives power to that which we fear. Remove the fuel and the fire quickly dies.

mikla's picture

"I don't want to see the pension funds wiped out either, that sentiment is one reason why the squid has this country by the ballz tho..."

In the face of absolute evil, it's only when you have nothing left to lose that you'll do whatever is needed to win.

The amazing reality is that the pension funds are already gone.  It's only by way of accounting fraud that we don't accept that now.  There is no scenario by which the pensioners will receive their payments (not even close, not even a chance, not a prayer).

The idea that the squid has power is only based on the impossible hope-and-fear that we can avoid reality.  It's like a pregnant woman, in fear, in the delivery room, trying to negotiate a deal where we can avoid this "childbirth" thing.

buzzsaw99's picture

I agree with every word. It is inevitable. However, that does not mean that I wish it to be so, merely that it is what it is.

Cognitive Dissonance's picture

False hope binds us to impossible situations.

Our chains are entirely voluntary and can be removed in an instant. We are the jailer and occupant at the same time. As long as we don't (honestly) talk about the roles we assume, we can play both to perfection, ensuring our destiny is self fulfilling.

"See, I told you we couldn't get out."

buzzsaw99's picture

Kunstler calls it "the psychology of previous investment".

Rogerwilco's picture

JH Kunstler is a dyspeptic old pothead who can't decide if he needs to scratch his watch or wind his ass. Maybe he'll eat a good beef stew someday and come back to his senses.

Cognitive Dissonance's picture

Time to return to the Yahoo boards where ad hominem attacks are the norm. If you would like to discuss the actual comment....

"Kunstler calls it "the psychology of previous investment"."

....please do so. But your tactic of personally slamming an author without even mentioning why the comment is baseless shows how childish and transparent you are. Since you've only been registered here on ZH for 8 days, maybe you should sit in the back of the room, shut your trap and listen for a while until you feel you can act more maturely.

carbonmutant's picture

Tyler, good see see you picking up some stuff from the Minyans who trade.

TheMacroView's picture

Great article. Anyone that believes things are "back to normal" is delusional

The Macro View

Hugh Janus's picture

i kind of want to see the market crash.  i'm tired of hearing these puppets on tv talk about how the fundamentals are great and how the banks are in great shape and the economy is in a V shaped recovery and green shoots and jobs are just around the corner.  oh yeah and communist china is going to grow at 10% forever.  if i hear one more person recommend CLF i might go  the whole system imploding might be the best outcome in the long run.

excellent's picture

Want to, will see, can experience the feeling of watching  farm of about 150 million chickens run in circles with their heads cut off.


Right now the chickens are being slowly lulled into a deep sleep so they don't hear the axe coming.

godfader's picture

Does it matter if this is a bull market or not? Giving names to markets is a game amateurs play. All one should care aboutis making money and managing position risk. All else is a waste of time.

PD Quig's picture

No, but it does matter if the bull market is bull shit. I hear what you are saying about trading tough and smart, but you just might end up winning and have nothing left to show for it. It's possible you would be better off getting prepared for when the SHTF than to spend your time managing your margin and rolling your stops to just beneath the second highest swing low above your entry...

43 Steelie's picture

Tyler...I understand your desire to be slightly PC by stating your intentions that you do not want to see the market crash...

But let's be honest here, the amount of schadenfreude that would take place on this site if/when this market drops 5-10% in one day would make even the biggest lifelong Tiger Woods critics look downright sympathetic. 

Can't wait. 


Cognitive Dissonance's picture

I don't wish to see the markets "crash" either because it will do great harm to many people. But I won't call those people "innocents" because the trumpet has been playing so long and so loud that anyone who claims they can't hear it is deliberately wearing ear plugs because the trumpet is so loud.

On the other side of the coin, I feel that only a terrible shock to the system will wake the people to their own self imposed servitude. But a crash of this nature will also compel those in power to do everything in their power to consolidate and possible expand their power.

Finally, doing nothing, allowing those in power to exert that very same power simply encourages the beast to be more beastly. To appease the beast may ensure your survival today but also ensures an even uglier death tomorrow.

Because no one wishes to do this math, because everyone wishes to bargain with the devil to stave off the day of reckoning when the beast must be faced, all we are doing is ensuring we and our children suffer even greater pain. The person with a tooth ache who stays away from the dentist because of the fear of the pain is assuring themselves much greater pain down the line.

We act like a 2 year old children avoiding mommy because our diaper is full. Sooner or later it's gonna be changed. We have control over the diaper rash that results from sitting in our own shit. Do we ignore the shit? That's what we're currently doing. So it's gonna be messy no matter what choices we eventually make because we aren't making them now, thus limiting the choices down the line.

hamurobby's picture

yes. ^

And as far as the markets falling and the pensioners and retirees getting their money, well I do hate it for them, sort of. I wish like hell we were not where we are at, but mama always said "dont let other people hold your money for you".  Eastern Airlines taught her a hard lesson that wasnt lost on me.

Leo Kolivakis's picture

Add Harrison to the rest of the herd who are asking why stocks keep soaring. They still don't understand that the liquidity tsunami is alive and well, and it will go on longer than they can short this market.

A couple of missing pieces to Harrison's analysis:

1) Pensions & wealth funds are shoving trillions into hedge funds who are leveraging up. The WSJ reports that China's national pension fund aims to step up its overseas investment and to more than double its total assets over the next five years to nearly $300 billion.

2)  Fed will do whatever it takes to avoid deflation, trying to reflate this economy to spur consumption.

Bottom line: I see no reason why global investors will not keep bidding up risk assets. There is still plenty of liquidity, and corporate balance sheets are getting much better.

BoeingSpaceliner797's picture

You are probably right, Leo.  Your call on US job creation for Q1 sucked though.  Jobs, schmobs, as long as the markets rise, right?

Oracle of Kypseli's picture


Global investors are smarter than you.

No one knows when the unwind will come and when it does come, there will be no time to react.

drexl spivey's picture

Harrison is not questioning why markets keep soaring.  In fact, he has demonstrated a shrewd understanding of the liquidity dynamic in play over the past decade.  Harrison's skepticism lies with how liquidity and interventionist policies are once again masking the massive cumulative imbalances that have not been resolved (too much bad debt, artificially low interest rates and yield compression pushing PMs further out the risk curve, underfunded pensions, trade imbalances, sovereign risk -- you name it) that portfolio managers who strictly adhere to your "Bottom Line" thesis chose to ignore - perhaps (actually, most likely) one day at their own peril. 

TH may apply more diplomatic prose than TD's gritty style (I mean heck, writers can't all be muckers and grinders, we need a few guys that know how to skate too), they both essentially arrive at the same view of the market. 

Again, your "Bottom Line" thesis may play out for awhile, but eventually mispriced risk will once again rear its ugly head -- and when it does, who's left to bail out nations?  Good luck.

Cognitive Dissonance's picture


You make a compelling case. And momentum is still towards the upside. But I'm not seeing conviction buying or even capitulation buying. I'm seeing a bunch of managers with itchy sell fingers who are buying because they're compelled to buy but also pulling back because it's becoming obvious the balloon is getting too big, at least for now.

We've all stood next to someone who's blowing up birthday party balloons and who's getting a little carried away. Without concious recognition of it, we cringe as the balloon gets bigger and bigger and we can't help but be cautious. I talk to a few money managers that run a hell of a lot more money than I do and they are worried.

Doesn't that count for something? I'm not talking about a "wall of worry" but a wall sitting on air. This rally is based almost entirely upon liquidity. That is not confidence inspiring. I understand that the Fed is trying to incite panic buying, another bubble. But there is more than just "normal" worry out there. Are you not considering this at all?

I appreciate your comments Leo and I'm not one to hang you just because you're a bull, though you have to admit you can be a bull in the China shop. :>) 

Leo Kolivakis's picture

"This rally is based almost entirely upon liquidity. That is not confidence inspiring."

Wrong, corporate balance sheets have drastically improved, which is another reason spreads are still coming in. Liquidity is abundant but fundamentals are improving. Now come the jobs...FINALLY!

Cognitive Dissonance's picture


You seen to be contradicting yourself to some degree. Not completely but somewhat. You said.......


"They still don't understand that the liquidity tsunami is alive and well, and it will go on longer than they can short this market."

A couple of missing pieces to Harrison's analysis:

1) Pensions & wealth funds are shoving trillions into hedge funds (edit - maybe over the next 5 years but not over the past year Leo) who are leveraging up. The WSJ reports that China's national pension fund aims to step up its overseas investment and to more than double its total assets over the next five years to nearly $300 billion.

2)  Fed will do whatever it takes to avoid deflation (edit..which means liquidity), trying to reflate this economy to spur consumption.

Bottom line: I see no reason why global investors will not keep bidding up risk assets. There is still plenty of liquidity, (edit - liquidity again) and corporate balance sheets are getting much better."


Most of you case hinges upon liquidity. I grant you that corporate balance sheets are improving but considering the amount of liquidity being pumped into the world, those balance sheets should much better than they are but aren't because revenues are not markedly better. Forget YOY measures because the early 2009 numbers were disastrous. Compare 2010 to 2006/2007/2008 1st and 2nd quarter revenue numbers. The underlying economy isn't getter much better and most of the improvement comes from cost cutting and deflation pushing down some of the raw material costs.

Your basic argument is that the Fed has a fire hose turned full on and you never ever fight the Fed. That it and of itself is a valid argument. But then you then discuss improved corporate balance sheets as proof of overall economic improvements but those improvements are not commensurate to the liquidity applied. And revenue compared to past years of fundamental growth are terrible. The stock market is going up because of the Fed fire hose. I agree with that premise, not that things are getting markedly better. Notice the word, markedly.

Just my opinion. Regardless of your views, you put a lot of work into your comments and i felt they deserved a reasonable discussion.

fuggetaboutit's picture

here is my problem with this logic.

1998, asia crisis hits. fed steps in and throws money into the system, to "save it". market goes up a lot. then it crashes. betting against the fed = 100% right thing to do.

2001 post the last fed induced crash, the fed again steps in, throws more money into the system to "save it". market goes up a lot. then it crashes, worse than the previous time. betting against the fed = again, right thing to do.

2009 post the last two fed induced crashes, the fed again steps in, throws yet more money into the system to "save it". market goes up a lot. this time it ends differently?  

jimmyjames's picture
by Leo Kolivakis
on Tue, 03/30/2010 - 14:39


"This rally is based almost entirely upon liquidity. That is not confidence inspiring."

Wrong, corporate balance sheets have drastically improved, which is another reason spreads are still coming in. Liquidity is abundant but fundamentals are improving. Now come the jobs...FINALLY!


What sort of sustainable economic engine do you see?

Corporate balance sheets are loading with cash and paying down debt-that's true-

It also could mean-they plan on battening down the hatches--

Until unemployment levels improve--somehow--i can't see what you see--


fuggetaboutit's picture

Just to make sure I understand this argument

"Trillions" of dollars is going to "hedge funds", who rather than actually hedging anything, will take it, lever it, and buy US equities?

And that differs from what the systems collapsed under in 2008, how exactly?

bc0203's picture

This market is akin to a bunch of speed freaks playing musical chairs.  More speed (i.e. liquidity) keeps getting added to the mix, and the players keep getting more and more amped-up, while almost no one notices the chairs being removed, sometimes several at a time.

Sooner or later, the music is going to stop, and there's going to be nowhere to sit down, because all the real assets will have been taken off the table.

john_connor's picture

Quick, lets jump in and front run the ADP report tomorrow AM!  The liquidity alone will give us a half percent or so.

LMAO.  Sad but true.

The longer it takes for real price discovery to happen, the more imbalances are created in the system, and the harder she will fall.  But hey, I guess everyone should just go out with a bang.  Perhaps they will re-imburse all stock losses thru a middle class excise tax. 

PD Quig's picture

The funny thing about crashes is that it is only long afterwards that anybody gets up, wipes their eyes, dusts themselves off, checks their limbs, genitals, and then says, "Hey, who were the stupid motherfuckers who said 'Buy, Buy, Buy!' right up until the end? Even then the touters don't seem to ever have any trouble getting their jobs back. The bigger the fuck-up, the blanker the uncomprehending stare and more dismissive the remarks as they pretend that they were just fooled like everybody else and cannot be held accountable.

In contrast, during these lazy, hazy, crazy days of rally, the smart guys have lots of time in between buying the dips, raising their stops, and filing their nails to taunt the stupid bears sounding warnings of imbalance.

Face it. There is only one dead bang certain way to know exactly when this rally will end. I am opening up this once-in-a-lifetime opportunity to only 1,000 traders/investors. For only $10,000 I will send you the sell signal at the top of the market. I have not yet decided when it will come, but when I decide to go LONG again you will receive your e-mail at which time you should buy as much FAZ, SRS, SDS, and QID as you can leverage.

I'll see you in Costa Rica. I'll be running the beer shack on the beach called "S&P 000."


john_connor's picture

LOL.  No doubt.  If I knew I wouldn't be posting here.

I also remember making smug posts as a bear back in the go go days of Oct. 08 and Feb. 09.  But hey, I can also be a bear and enjoy some long trades over a few days time.  I think it is very, very dangerous right now however. 

I'm sure you recall the days when the down gaps jumped right over your stop, but maybe you are one of those traders that are never wrong.

stoverny's picture

"We will posit that: 1) the world is dividing into two blocs: the plutonomies, where economic growth is powered by and largely consumed by the wealthy few, and the rest."

"In a plutonomy there is no such animal as "the U.S. consumer" or "the UK consumer", or indeed the "Russian consumer". There are rich consumers, few in number, but disproportionate in the gigantic slice of income and consumption they take. There are the rest, the "non-rich", the multitudinous many, but only accounting for surprisingly small bites of the national pie."

Our whole plutonomy thesis is based on the idea that the rich will keep getting richer. This thesis is not without its risks. For example, a policy error leading to asset deflation, would likely damage plutonomy. Furthermore, the rising wealth gap between the rich and poor will probably at some point lead to a political backlash. Whilst the rich are getting a greater share of the wealth, and the poor a lesser share, political enfrachisement remains as was -- one person, one vote (in the plutonomies). At some point it is likely that labor will fight back against the rising profit share of the rich and there will be a political backlash against the rising wealth of the rich. This could be felt through higher taxation on the rich (or indirectly though higher corporate taxes/regulation) or through trying to protect indigenous (home-grow)] laborers, in a push-back on globalization -- either anti-mmigration, or protectionism. We don't see this happening yet, though there are signs of rising political tensions. However we are keeping a close eye on developments."

buzzsaw99's picture

If you could name me one honest non-lunatic politico that cannot be corrupted or coerced the people could vote for I might agree with that. Divide and conquer, bribe and threaten. The people have no hope. The wealthy on the other hand have absolute iron clad guarantees for their wealth and rule with an iron fist. Tell me it ain't so.

MarketFox's picture

The real question at this point should be what are the government policies that could be implemented which would be reasons that the markets would rise.

1) Complete tax restructuring

ie 15% Consumption tax only

A tax structure that would make globalization a smart endeavor. One has to create a tax structure that will produce the largest, sustainable economy of the future. The current tax structure is on track to produce a much smaller future economy.

2) Severe austerity measures

3) New economy changing type innovation

Namely energy

4) Incentives to save

Offer interest rates that reward savings

Offer a better tax free securities exchange