The Relentless March Forward

The market has been resilient. It’s not necessarily ‘fluctuated’ as JP Morgan once said but more like a slow, low volatile march higher. Where it goes is anybodies guess, but most people have guessed it should go lower. Admittedly I am in that camp and long VXX along with SPY Calendars (long vol, short delta). Normally I don’t waste time pontificating on the direction of the market, all my strategies require is movement! Up and down action is where I can make a lot of money, trends can work too just that it requires volatility.

While a slow uptrend like this can play havoc for someone like me, the vast majority of the public is of the buy & hold variety either through retirement accounts, pension funds, or mutual funds. So to the general population and politicians the picture looks rosy. However here is a summary of some very interesting data for the bear case:

Across the Curve – A seasoned fixed income trader posts a link to a report from Lacy Hunt at Van Hoisington (what that is I don’t know) however it describes two major themes to the bearish case, unsustainable GDP to Debt ratio and the velocity of money.

Macro Man – A global macro trader at a hedge fund explains the velocity of money issue here again. The Fed may be pumping into the system again but it’s only finding its way into the financial sector creating even more leverage.

Suddent Debt – An engineer turned perma-bear, his analysis is excellent but needs to be tempered with the understanding that the market sometimes doesn’t care about data. It’s more of a biological organism then a spreadsheet. There are a number of posts on velocity of money, Debt to GDP, wages, and an interesting statistical study on the market since March.

Much like the argument regarding housing, the data is undeniable and it makes a great case. But also like housing, it was identified years before the inevitable crash. So while my book is positioned for a certain scenario, I must be cognizant of another scenario, a range bound or even higher market for some time. Nobody has been able to time the market effectively forever, I would assume even the best operators (large scale, that is that make a bet and have to stick with it) are probably batting around 33% range. I certainly don’t believe I have any great skill, though I do have an opinion, I need to have positions to profit or at the very minimum hedge upside movement. Therefore I am long some ratio spreads in individual names and looking at cheap bullish butterflies…

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~ by largecaptrader on October 21, 2009.

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