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There is only one trade right now, and that is “Risk On.”
I noticed that I have had trouble composing my newsletter lately because in thumbnail form, all charts now look the same, a lot like a 1952 Mercedes 300SL with its “gull wing” doors open.
Looking at the long list of positions that I have recommended this year, including dollar/yen and dollar/euro, municipal, junk, and corporate bonds, emerging market ETF’s, Toyota, the US, Australian, and Canadian dollars against the euro and the yen, silver, platinum, palladium, oil, and commodities, I am stunned to see all of them working, some quite dramatically so. I can assure you this is not because I suddenly acquired the touch of Midas or the wisdom of Croesus.
All assets are going up, period. Fundamental research has become an irrelevance. Earnings and GDP forecasts are being ratcheted up by the day. The S&P 500 has gone up for 400 days now without a 10% pullback and we have seen the fourth strongest stock market rally in a century. There is vastly more risk in the market than there was 13 months ago.
Of course, I blame zero interest rates for everything, and the Fed’s need to inflate new bubbles to rescue us from the old ones. It also helps that Obama turned out to be a moderate in liberal clothing. How else can one explain an 82% gain in the S&P 500 in 13 months? Despite the largest borrowing binge in human history, long term interest rates are levitating just above all time lows.
If everything is moving up in unison, you can expect them to go down the same way when the premise for their prosperity disappears. You have already been tipped off twice on how this movie is going to end, once on the day when the sushi hit the fan on Goldman Sachs (GS), and again when Greek debt was downgraded. Those were days when everything moved down in lockstep, and hedges proved worthless.
If you are looking for another reason not to sleep at night, I’ll give you one. Investor sentiment is now 54% bullish, the highest since December, 2007. In the meantime, the Chinese stock market is rolling over like the Bismark, with the Shanghai Index’s ($SSEC) down a worrisome 10.8% YTD. You can blame the Chinese central bank’s efforts to cool down real estate speculation, which is throwing cold water on the rest of the economy. Will it also throw ice water on ours? Many of the profits that have driven US stocks to bullish extremes are contingent on selling a huge range of capital goods and commodities to China and the rest of the emerging markets, hence the disparity. This divergence can’t last, and my bet is that it breaks by American indexes joining China in a downtrend.
Take that as a wakeup call, and adjust your risk controls accordingly. Keep a hair trigger on your mouse for when the dreaded “Risk Off” trade hits.
To see the data, charts, and graphs that support this research piece, as well as more iconoclastic and out-of-consensus analysis, please visit me at www.madhedgefundtrader.com . There, you will find the conventional wisdom mercilessly flailed and tortured daily, and my last two years of research reports available for free. You can also listen to me on Hedge Fund Radio by clicking on the “Today’s Radio Show” menu tab on the left on my home page.
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This guy has becoming my favorite reverse indicator. He said sell all rallies when it was only going up, and now he says risk on as it goes into reverse....
I remember him banging on about Barrick Gold, but not mentioning the hedge book and I remember him calling to by FXC at the top.
I do not consider Pms a risk trade.
Because we all will be able to file through the exit doors simultaneously, right?
http://www.youtube.com/watch?v=S8H2FIf1oH4
As long as interest rate is 0, buy the dip.
It also helps that Obama turned out to be a moderate in liberal clothing.
Really? I mean, really?
Risk On - you ain't seen nothing yet!
"How else can one explain an 82% gain in the S&P 500 in 13 months?"
How about High Frequency Trading? How about computers emotionlessly scarfing instantaneous short term profits? How about colocation of computers on NYSE floor to enhance HFT profits? How about ZIRP feeding money to speculation?
How about banks lying about their asset values with the permission of the government? How about phony promises by politicians? How about a Federal Reserve that refuses to be audited? How about main stream media that won't question why huge banks are allowed to have massive speculative shorts on precious metals?
Sure the public is a bit more skeptical of these schenanigans and not participating as much. But most of the trading of stocks now appears to be computer originated. And even if the public gets nickeled and dimed on the spreads by these computers, we have a government that is so desparate about the potential for paying insurance on mass pension fund underfunding defaults, that they will let these crooks continue with their rape of other people's wealth, just as long as the government does not have to pay the piper.
All hail the corruptivism that saves the banksters, at the expense of everyone elses' jobs and investments.