Wednesday, December 9, 2009

Big Brother meets Ben Bernanke

[We interrupt our regular schedule of abstract pontification to bring you this quick note on price action]

All summer long, asset markets boomed while the US economy (in my opinion) more or less stunk. Why? Because of central bank policy.

Then on Friday we had a strong payrolls number (just 11k jobs lost, much better than expected).

I think this makes the Fed on the margin more likely to hike interest rates.

Sure enough, asset markets have been going down since the number came out.

It's almost Orwellian: war is peace, good news is bad news, strong numbers are weak numbers.

But that's what happens when you let asset prices be determined (supported) by central banks instead of by economic fundamentals.

Anyway, I'll go out on a limb and say that last week was the high for 2009 and we'll sell off into 2010.

This move will be reinforced by year-end risk reduction. Also, for what it’s worth, most technical indicators look really exhausted.

I have sold [EM] stocks aggressively over the last 3 days and now have plenty of [dollar] cash. Let’s see how things play out.

[Clarifications in square brackets added on 17 Dec; also, note that I currently own no US stocks.]

1 comment:

  1. I am at market neutral also. I went neutral at around 1100 on the S and P. The S and P is my benchmark. I set allocations using only 3 variables: by value, the economy and by The Herd.

    Presently the S and P seems to be about 15% to 20% overvalued, which is not bad.

    The economy will trend positive for the next year and a half, which is not bad.

    So my big fear is the unrealistic expectations of the market(The Herd of momentum investors). That is why I am market neutral with about a 55% allocation to large cap stocks, 23% allocation to generic hedges in ETF's(FAZ, SKF, SPXU, FXP, etc) and a lot of cash. No long term bonds, of course!

    Presently I am making a little money in swing trades as the market trends higher and lower around the 1100 S and P mark.

    I am waiting for The Herd to realize that the government is not helping our plight just masking what the final outcome will be.

    I am definately not a technical investor like you seem to be but I appreciate the brainpower.

    I am a simple investor and very conservative. My account never does much as I am up only 13% from the market peak in November of 2007. Very boring but I still have all of my capital for the bottom in two years.

    My goal is to trend with the S and P after it hits the market bottom in 2011.

    I appreciate your safisticated outlook and will try to follow as you post more in your blog.

    Good Luck.