I Am Most Cautious

Allow me to make a coarse point here: I have no fucking clue where this market is going today, tomorrow, or anywhere in the foreseeable future.

That’s not to say I’m not seeing some happenings in the marketplace with crystal clarity.  I actual am spotting several very important developments which have me quite fixated.

No, rather, I just don’t have a good feel yet for how things will ultimately play out.

We have some powerful undercurrents here which seem to be at odds with one another.  I’m not going to make guesses on tomorrow’s temperature with these hot and cold fronts crossing each other as they are.  All I can say is that tornado’s can come from weather like we’re seeing now, so I’m going to concern myself with boarding up my windows instead.

A few points:

• Asian markets are overheating because of their currency devaluations.
• Europe is once again stalling out.
• American municipalities are in a serious funding crisis.
• The last round of economic data hasn’t been bad.
• Our economy doesn’t necessarily depend on the prospects of the unemployed improving; our system can pick up from simply cutting these segments of the population out of their positions, effectively putting in a bottom.  I’d guess this has been happenings, in some form or another, for the last two years.
• Home prices across the country have depreciated substantially to make renting economical for landlords.  However, shit is still way overpriced in a few key areas.
• $600 billion in devaluation is a very large sum.
• Austerity seems unlikely at first glance, given gridlock.
• The Deficit Commission report was fairly well received.

So what’s the point?  With key developments in the Euro countries again putting pressure on their currency, the dollar is bound to strengthen and, thereby, our markets are sure to pullback.  Yet, the Fed is working tirelessly to see that this doesn’t happen.  Where is the dollar going?

American municipalities blowing up spells trouble for the economy at first glance, yet how much does the American economy really depend on suffering people receiving aid from local programs?  And now, key employment data has seemingly been improving.  How will it all play out, and what will the market look like in response to these developments?

There are lots of other questions.  What role do financials play in the market at this time?  Do housing prices really matter, at this point?  Does the Fed find itself to be subject to the will of common politics nowadays?  Will programs be cut, or will emergency aid be granted?

All of these questions, which in varying magnitudes can mean radically different outcomes, I do not have answers to.

So instead of running around making asshole predictions about where these specifics are going, I’m going to exercise self control and discipline.  I can’t control what all of these complex relationships are doing.

But I can control myself by staying out of their way.

For the last couple of weeks, I’ve been conducting myself by four points:

1. Hold institutions at their word.
2. Keep my planning to my scale.
3. Balance existing position sizes.
4. Look for the signs.

I’m at least willing to steer clear of holding any form of currency, since the one thing every government in the world seems to be saying clearly is, “We plan on fucking you over.”  Thanks for the heads up guys.  Now stay the hell away from me.

Meanwhile, margin could escalate my problems, if I get caught on the wrong side of the tape, long or short.  So it’s gone.  Loading up on margin was an obvious move back in ’09 after everything was reversing hard.  And it still makes some sense to keep my credit position on my silver holdings.  But even for that last one, it won’t for much longer.  The Gold:Silver ratio has been closing, and while I like the prospect of both against currencies, it’s high time to settle obligations and only play with my own money.

Also, I’ve scaled back my margin by cutting from my largest positions, like APC, NRP, or recently VZ.  These things were mammoth next to my other holdings, mainly because they’ve been on hot streaks.  But because of those high flying moves, I see them as more risky versus my solid holdings.  I like holding a few positions, each worth somewhere between 10-15% of my net accounts.  But, when individuals start outpacing the others, taking up 20-25%, it’s time to start reining them in.

And finally, I’m going to keep my eyes open.  I can’t see what’s happening now, so I’m not going to make long term plans.  But when I can see clearly what’s going to happen, then I’ll commit.

Then and only then.  Not until.

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