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There is really no purpose to this post, other than to rant and make a few observations. First, I learned some time ago that I am not a very good discretionary trader. I have to stick with my strategies, in order to be successful at trading. As I have had no signals in a couple of weeks, I have been watching the latest market machinations unfold while I sit in 100% cash. With that in mind, you may mistake my thoughts as a thinly veiled attempt, from a man with no conviction, to rub salt in the wounds of bulls and bears alike. Let me assure that is not at all my intent, and my convictions are very very strong.
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I have many internet friends who have traded this market with god-like precision. Some have sat short, for many months, and reaped healthy gains. Others have sat patiently in cash, or have played the dips like a maestro with his Stradivarius. Now, at this time when the market is behaving exactly the way it should be behaving, when all the patience and discipline and diligence is paying off, I see most are now looking for the market to do the opposite. However, months ago, when all of the events of the past weeks would have seemed possible, but unlikely, they were preparing for this very event. It is here, and everyone seems unprepared. Or maybe they are prepared, and I’m the one with a severe case of myopia.
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I stopped performing technical analysis of the indexes when talk of the bailout juiced the indexes up over 6% in a couple of days. It seemed to me that the markets were actually beginning to trade on and price-in the fundamentals and the reality of the economic situation. When the bailout rally failed to hold, I knew, with 100% certainty, that everything was different. I knew that it truly was going to be different this time. Then, when the bill passed, and the market sold the news, my beliefs were confirmed.
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Despite this death-knell ringing out loud and clear from Wall Street, the bottom callers came out in droves. The bears began covering their bets. Traders with many more years of experience than me, people I respect and have learned from, began dipping their toes in, on the long side. These same traders were calling for the day of reckoning, for over a year. Yet when that day seems very near, they are getting long. This is incomprehensible to me. Everything they prepared for, all the rhetoric they have espoused, all the research they have published, everything they have based their reputations on over the past years is arriving, is coming to fruition, and they seem unable to trade the event.
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If that is not a sign of impending collapse, what is?
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The last hope of the Fed and the bulls has been a rate cut. Did anyone doubt the rate cut would get sold? The real cost of borrowing was already below 2%. What’s the point? The trade seemed so simple to me. Fade the Fed. I’m perplexed that more traders did not see that today was another sell-the-news day.Â
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The banks are playing a game of Russian Roulette. And if the wrong institution gets the bullet, the whole global financial system gets its brains blown out.
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And maybe the realization of that reality, that we really are one accident away from a complete catastrophe, means that we are bottoming. Maybe this post will mark the bottom. That would be poetic justice.
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And maybe we are at a tradeable bottom, and we just have another six months to a year of grinding volatility, before we hit the final lows. I can understand how that scenario is a viable possibility.
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However, when playing Russian Roulette, you either get the bullet, or you don’t. In a game with such a deadly ending, does it really matter that the odds are in your favor?
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I see International Business Machines Corp. [[IBM]] has reported earnings early, and they are better than the worst expectations. Maybe this will be enough to allow market participants to forget that the Fed is out of options and the derivative bubble is unwinding.Â
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So maybe we dodge the bullet tomorrow. Maybe we get lucky.
I am in agreement with Shed.
You may find this to be crazy, imbalanced, whatever. But I discern danger. Not losses. Not bull vs bear. Not bottoms or tops. Not Democrat or Republican. Danger.
For me this is a spiritual thing. A Gospel truth thing. An internal, God-given radar that I have. I can’t explain it other than that.
I say this at the risk of being mocked and told to leave (again). I say it anyway because I am compelled. I hope I am wrong.
Danny commented in an earlier post that if this is truly the thesis, one must plan in very radical and bizarre ways. I have done this, and am considering more.
I know its not the rational position. I know the case for a reversion to the mean. I know all of this but I do not really deep down believe it. I think things are going to be very different for all of us for a very long time.
Perhaps I am a fool. I have been a fool before, and will be one again.
I am thankful for a place like this to bounce these thoughts off of a very smart(assed) community.
Woody,
Thanks for such an insightful post.
I feel it too Boomer. I am normally very rational. Rational to a fault, some might say. Right now, I feel like an animal, whose 6th sense says get prepared, a disaster of a storm is getting ready to blow in.
Wood,
I respect your opinions but how long do you expect this sell-the-news shit to continue? The way I see it, markets are forward-looking. The bailout shit by comissar Paulson is going to take time to work through the system. What would be your comfort-zone in terms of discounting the bad news?
Nice post. You should rant more often.
There isn’t much to add to what has already been written other than to say I feel it as well. It seems that everything our appointed and elected officials have done to date have had zero effect on relieving the panic in the credit markets. I get the feeling the smart money is preparing for the worst and hunkering down.
I really hope that I am wrong. I really do. I am in cash and have nothing to gain from a crash other than a great buying oppportunity, but if a true crash were to happen I’m not sure I would have the balls to buy it anyways so there’s that.
I’m sure all of this marks a bottom.
Shed, I believe you might be projecting your emotional reactions onto a prediction of potential disaster. (Nothing wrong with that, it’s one of many “normal” reactions to unusual and stressful situations.)
Normally you trade with a quantifiable math-based system from which you draw logical conclusions, and make thoughtful decisions based assessing your conclusions in light of past experience.
You’re not using your system right now, and your emotions have room to color your thoughts and reactions. Your intuition tells you something is up, but you honestly don’t know when. For a logical, rational person that can cause major anxiety and feelings of impending doom. My intuition sends me a lot of signals too, I can’t listen more than in a general way to my intuition because it’s too frequently wrong when it comes to the market. So I listen to my intuition, but fit it into the more conventional framework of fundamentals, valuations, oscillators, research etc. so that I can see whether it’s truly a flash of insight or a flash in the pan.
I wish I could adequately communicate that my sense of intuition is telling me the opposite of yours. Maybe I have contented myself already during this year with reduced economic expectations due to real estate transactions on hold and lord knows what else, and feel ok about the outcome no matter what, because I know I’ll do my best to handle it.
BTW there is risk in every financial situation for all parties, but what’s unacceptable risk to one person is ok for another. I appreciate you’re trying to warn us to be careful.
this post, unfortunately, rings true to me. I am 100% cash since July, now feel the next bullets to dodge are (1) bank freezes of assets (2) failure of FDIC and (3) devaluation of us dollar. As unbelievable ad the market slide feels now, hey, it’s today’s new reality.
Tomorrow’s reality can just as easily be systemic failure. That’s what I am figuring out a strategy for: defense against it. Not worrying about trading a bottom. Worrying about defending cash in an unprecedented situation.
I knew that it truly was going to be different this time. Then, when the bill passed, and the market sold the news, my beliefs were confirmed.
I remember talking to asshats at the height of the internet bubble whose “beliefs were confirmed” that “this time it’s different” because Amazon was spiking past $400, just like Henry Blodgett had predicted.
No offense or anything.
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If you’re really that chicken shit, get into some gold. They– the PPT or CB’s of the world — will fight a meltdown with inflation unto hyperinflation.
And guess what, Hyperinflation may have poked it’s head above the waves tonight.
She is, after all, the big sister of GLORC.
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Woodshedder, Boomer,
I am right there with you. I enjoy being able to come here and bounce around thoughts and ideas with other experienced people.
I have been waiting for this shit for a long time, having first discovered Austrian economics while in college (note it was not part of the official curriculum) and then stumbling across elliot wave and cycle theories when I first got started in the market.
So here we are staring over the edge and I feel myself woefully short of shorts for someone who has been an uberbear this year. I had to exit short positions today in family accounts. Simply had to because of the chance of a huge rally and the profits I have in hand already. I actually legged into some long positions; value plays if there is such a thing left, and grabs for dividends in companies that I think will make it. Besides that, I’m sitting on a lot of cash.
I did the same thing to a lessor extent in my personal trading accounts, but even so, besides for a couple of highly lucrative put positions, I find myself unhappy that I am not prepared to reap more benefits from a possible and probable crash.
Ah well, there will many, many opportunities to trade over the next six months (at least). Right now I am going to stare at my account balances for awhile in order to remind myself that the past three weeks have been my best ever.
I’d rather leave a little on the table, than be the main course. Truly it is better to be safe than sorry when we are unsure of direction, and holding gobs of cash. This is not a bad problem to have. But I am resolving here and now to trade my own accounts with more conviction about the seriousness of the problems we are facing.
Good luck to you all.
Ozark, I have some AAPL overnight. Not much, but a taste. Life rolls on and I roll with it.
May all of you be protected from the wrath of my inverted rain; and more importantly, may Fly’s cash positions be spared from a frozen black hole.
Topper, I’m having a hard time thinking in those terms.
First of all, I do not believe the bail out was a viable plan from the beginning. It is nothing more than a time out, to slow the unraveling.
I believe that we are witnessing a fundamental change in the financial models of our great country.
I’m looking for a paradigm shift. I’m just not sure what it is.
The best I can come up with is that private equity will be the lenders in the future, instead of the borrowers. An 8% return will soon be good, as it will allow for the growth of capital, with lowered risk. I believe private equity will begin to move towards that model.
That is the best I have right now.
Boca, very perceptive you are. I do not disagree with your thoughts, and you are probably correct.
This may sound even more crazy, but part of my disconnect is realizing that Americans may be just stupid enough to run their own fucking country straight into the gutter.
I’m a little pissed that my children may have to inherit these mistakes.
Well spoken. Read through it twice. I like the ‘No filter’ Wood guy.
Ozark, jc, contractor, and others…I’m glad I’m not the only one. Seriously thanks.
An 8% return will soon be good, as it will allow for the growth of capital, with lowered risk. I believe private equity will begin to move towards that model.
This post belies a fundamental misunderstanding of finance. If I weren’t bone tired, I’d go into it more thoroughly, and maybe I will tomorrow…
but let me put this to you briefly. “Private equity” does not work at an 8% return target.
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Jake, think out of the fucking box for a second.
You think things are just gonna go right back to normal?
I just threw out 8%. Fill it in with whatever you think is appropriate.
Boomer,
LOL, I still have some Apple puts. QAAMT, JAN 100. Bought them for .30 or something like that a few weeks ago when Apple was at 177 or so (right around the August high). I have whittled away at the position and these are some of the egregious profits I have enjoyed lately. So I have been true to the bear faith maybe more than my previous post indicated. Now I have to decide whether I will sell the rest before the next rebound about to commence, or will I hang on for a lower low within the next few weeks? I don’t want to reload on a bounce with these high premiums, but I don’t want the premium to erode too much if I hold. Arrgh.
Not a bad problem for a bear to have I suppose. When confronted with these situations recently, I have more or less opted to take the money now and not worry too much about what I might miss ….. but like I said earlier, it leaves me lacking in case of all out chaos since it is so expensive to reload.
Went long BCS and APL today.
man i hear ya, i have been short the Q’s for almost 9 months and was in pain for awhile, yet it seemed almost as hard to not take profits in the last few days as it was to watch the position bleed for weeks at a time earlier.
today i actually shorted in my IRA, just trying to get it into a neutral position, if it can do close to zero for the next month or so I will be happy.
Pluto rules debt markets.
Pluto was ruled “not officially a plannet”. in 2006
This was perhaps a sign by the elite that this ruler of debt markets is going to have very different effects. In other words, get out of all things realted to debt, and get short. This announcement came at 2006, giving plenty of time for people to do whatever they could to get out of their illiquid houses, and banks, and buy credit swaps, and short banks.
XLF peaked a year later in 07.
Pluto is transitioning from Saggitarius into Capricorn which it will remain until 2024.
Might as well add that Mercury is still retrograde!
woodshedder,
First, let me say that your post was very well crafted and was an obvious honest attempt (by you) to convey your concerns.
Thanks for that !
But…let me say…I don’t hear ANYONE saying that “we have BOTTOMED.”
Look…as a fellow “chartmonkey”, I think I understand the discomfort you’re feeling. I ALSO see that the charts are broken. Oscillators (and other technical indicators) are virtually useless here.
This Market is so “news driven” that any chart set-ups… more often than not…can’t be trusted. I think you found that out a week or so back when you called for a “tradable bottom.” A call I might add that I agreed with ! fwiw
Well, we know how that worked out, huh !?
Having said that…and the fact that I …like you…spend way too many hours staring at charts…I believe that there are times when you have to be willing to look away from the charts (if only for a second) and open your ears and listen to the Markets (as opposed to seeing the “visual representation” ie. charts) ! And what I HEAR…right now is…The Market wants to go UP !
Parabolic moves don’t last forever (Up or DOWN) !
Listen…do you hear it ? lol
Regards,
alf44
Woody,
Great post. I just want to say that I think the “sixth sense” that you and Boomer discussed is very real… it’s fear, and it’s what makes bottoms.
Maybe not tomorrow, maybe not next week, but it’s happened time and time again.
It’s human nature and it still works.
As for the financial system? I haven’t the slightest idea.
Good luck these next few days. Like I said not to long ago on my own third-tier blog, I look forward to laughing about this all in March, as improbable as that sounds right now.
-DT