Trader Shares "A Few Ideas For Avoiding A Friday Faceplant"

From Bloomberg macro commentator, Richard Breslow

Don’t mistake this as a trade recommendation, but it is all right to do nothing. Trading when you believe you have an edge is when it is time to step in. If you are there, then go for it. But trading merely because things are moving around is a day-trading concept, not an investment thesis.

It’s important to match trading style, objectives and realistic liquidity assumptions to how you view volatility vs risk. They are very much not the same thing. Made even more so if you think the Fed equity put has been eliminated. It hasn’t, just moved some.

I guess I would be more excited about jumping in if I could construct a more coherent explanation for precisely what is going on. And if I can’t come up with some half-baked theory I’m willing to run with, I’m willing to bet neither can a lot of other people. Even if they are more than willing to be adamant that it all boils down to one thing. It doesn’t.

And while I have lots of ideas of what, gun to my head, I’d do right now, I’m not sure there is any special advantage to blithely concluding this has all been noise or is the start of the big one. And that question is where you should be starting. Your correlation matrix depends upon it. Which matters mightily if you are busy doing X because of Y. Unless you just want to keep entertained by leaning on some very obvious, and close, chart points. And I fully understand the temptation. In fact...

Another thing to keep reminding yourself is the importance of considering the source. In the pure QE world it was easy for everyone to be an expert on everything. We knew how each act of the play, let alone the whole thing, was going to end. It’s trickier at the moment. And every market analyst who tells us about the intricacies of Middle East negotiations one day may not be as au fait with the market dynamics of the Dalian iron ore exchange the next. At the moment, I’m treating the word “because” with unusual circumspection.

There is one tangentially related issue I can’t get out of my head. Yesterday, Bloomberg News had an article about Russia’s plans to further mimic other sovereign wealth funds by having its National Wellbeing Fund take on more risk, including stocks. It may not be useful today, but think about it when someone wonders just who might consider buying a dip. Or what the implications are for a sovereign wealth fund that thinks it can invest big but be able to sell quickly.

Now go read the news and decide what your plans are for the day.