This Is Not 2008

2008 was a matter of poor balance sheets. It was a matter of assets being inflated in theoretical price, only to realize that their real value was but a fraction. It was about BV’s higher than they should be, and funding that was unavailable.

Today we have more liquidity, better balance sheets and assets being inflated at but a fraction of what they used to.

This is a demand crisis, rooted in fear, through and through.

UPDATE: And as everyone is already pointing out. A destruction of commodity costs and a rising dollar are exactly what the Fed needs to fire up the presses. Let Oil come in below 75, below 70, see what kind of “tax cut” that is. The real QE = cheap gas. A dollar that recoups some of its lost value, a dxy around 80, see how many more dollars are printed into THAT monetary base.

I’ve been awake for an inordinate amount of hours the past couple days, constantly pondering what the fuck is going on in the markets. I like to argue like a lawyer, so it’s no surprise that my favorite economic theories belong to a heterodox school of thought, Austrian Economics. I can pose well-thought hypotheses to anyone, with more abstract thought in substance than empirical data, which is only a function of the Austrian school of thought, one that believes empirical data is often useless due to complexities in the economy. I typically side with Jim Rodgers or Peter Schiff, two bigger names that consider Ben Bernanke a fool, tossing good dollars after bad. I perceive gold and oil as real goods, compared to the valueless paper money we use today. I’d like to think demand comes from supply, that spending happens after saving and that the few in government planning for the many in public is a fool’s errand. I enjoy reading about and watching videos of Murray Rothbard and the “Fight Of The Century” video (link here) was a delight.

It’s a wonder to me, then, why I’m sitting here stunned by a stock market on the edge, struck in the face like a Tyson punch by the macro economy, despite various efforts by Ben Bernanke and company. I care not to speculate why I’ve made the grievous errors that I’ve made, but rather collect my thoughts and put together an actionable thesis for the future, in order to climb back to the peak of the mountain, where I can again relax in my beach chair, beverage in hand and attractive woman by my side. (That’s right, a fucking beach on top of a mountain)

But first, if you will, allow me to put some of my thoughts into words, in an attempt to convert Keynesians but more so to expedite the thought process…..(more to come)

What are you doing, right now? Sitting there by your computer, anxiously awaiting the Fed, be it 3 hours from now?

GO TO THE GYM.

That is precisely what this market is. Through September, a notoriously bad month for stocks, we have been given several 1%+ up days. However, those up days have seen breadth average at best, and wild cross currents that could cast doubt on the most staunch of permabulls. Fights like AAPL vs. FCX, Tech vs. Industrials, Small cap vs. Large cap, etc., are crowding the marketplace with enough evidence for both the bear and bull that literally no one knows where to go. And on a more macro scale, we have inflation freaks vs. deflationistas, both with smoking gun’s of their own. Or, we have those who see an accurate value on the S&P at 1400+, and those who see 30% EPS revisions, to the downside, coming around the mountain.

I’ve been a victim as well. Typically, my style is to capitalize on the hot parts of the market on up moves, capturing some % points here and there, and then locking in profits and protecting the downside via inverse ETFs. I’m not one for shorting, usually. Nor am I one for operating a “neutral” book. I pride myself on, and bank coin by correctly stipulating where interim market tops and bottoms occur. So since my return from summer travels, and initiation of this blog, I’ve been relatively numb, unable to formulate a thesis for any day, let alone a week. Today is no different, as again I’m handicapped by several stocks that just won’t fucking perform, despite the market being +1%. In fact, my best trades this month have been the hedges I’ve put on, correctly protecting myself from the downside action we’ve witnessed thus far this month. For that reason, proper hedging, I’ve been able to keep my losses at a minimum, the book only being down less than 1%.

I’m presented with a problem, though. If my style isn’t working, I need to adapt. More to come….

I sold SKF +5.61%, TZA +6.5% and DECK +2.4%

I bought more ENTR and bought into AGQ

I need to workout and take care of a few other things, then I’ll have a full post for you all

I’m just below 40% cash with 1 short, CRM at 3%, rest long.

You won’t find much argument among investors that the most important skill in trading / investing / gambling is the skill in avoiding over-playing. Several prominent economists and investors have labeled stock picking as easy or random, and one economist’s study even proved that industry professionals have not hardly an edge over just indices, but actually hardly an edge over a portfolio selected by thrown darts. (Link here) I put forth that it’s not stock selection that makes a trader successful, but the avoidance of stock selection. The knowledge, ability and self-control to remain inactive when times are tough or there is a dearth of attractive investments.

Stocks and poker are incredibly aligned. In both, the collection of information is vital to the decision making process. The winners are typically the ones with more information, the elusive “edge,” that allows them to capitalize on alluring opportunities and avoid the ones that aren’t. But, in both, the fail rate is absurdly high; because in both, contestants are constantly drawn to compete, confident that what they decide to do is the right action, even though it may not be. In poker, it’s the players that, even though there may be present some reasons to continue to play, have the ability to throw away cards because the end result isn’t “+EV,” or positive expected value. There definitely exists a corollary to stocks.

The most troubling fault of unsuccessful traders is that they constantly feel the need to participate. They often take on positions that do not present favorable risk vs. reward. Further, they continue to trade themselves into holes they cannot escape from, only securing their failure.

You can play the stock market three ways — You can bet something goes up, you can bet something goes down, or you can not bet at all. Mastery of the first two will make you money, but mastery of the third will keep you alive.

As a sidenote, my friend ChessNWine, a tabbed blogger here on iBC, is the best at this skill; a true master of self-control and risk vs. reward.

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