Wednesday, November 12, 2008

Win Some Lose Some

Yup, stopped out. The EEV trade would have been great, if I could have stayed awake long enough to trade. The shift from daylight savings time means the market opens up here at 1:30. We still haven't moved into our house, so that means I hang out in the lobby of the king Solomon Hotel and trade. A recipe for bad decisions.

I'll tip my hat to my friend Kenny for that idea, but I'll accept full responsibility for the bounce trade that never really happened. Or it did, but man was it brief. I'm now stopped out again, with not much to show for all the effort. It appears the deterioration in the US economy is happening so fast and so hard that hope has no time to gain purchase in the minds of investors. John Thain, late of flipping Merrill to BoA, recently remarked that we are "entering a slowdown of epic proportions." I'm short term neutral for now, long term scared. I would like to be short, but I am scared shitless of a massive bear rally. As the old timers say, sitting on you hands is the toughest thing to do.

We have seen the markit CDS spreads jump quite a bit in the last three weeks, questions about Spain and Italy sovereign solvency are coming up, US corporate issuance is basically zero, credit card are getting shut off by banks, the TARP keeps changing direction and it doesn't look like the oil price decline has helped any where near enough. In the Battle between lower oil and a fiscal package, and broke consumers, the later is wining. The credit card shut down is a huge deal, as consumers have been using this credit for daily items. I suppose the possible short lived consumer bounce will have to wait until Q1, when we get out first fiscal stimulus and lower oil can begin to help.

I guess the market wasn't impressed with an Obama win, nor with the China stimulus. Easy to understand the first, and a bit of a scary reaction to the second: the real response was, "so things are that bad in the Middle Kingdom?". Mutual fund withdrawals continue and some of the big hedge funds are shutting down (Tontine), adding alot of selling pressure to a fragile market.

The long term look for worldwide equity markets continues to be ugly and getting uglier. BoE and ECB both slashed rates, banking systems in both regions are likely bankrupt. Sovereign bankruptcy is a risk for a growing number of countries, FX reserves are declining at precipitous rates in the capital account surplus countries. The US Fed no longer has any monetary tools left to manipulate the system; all they can do now is use "quantitative easing" which simply means printing money. That means there really is no Santa Clause anymore.

As we enter the holiday season, I really don't want to try and act the hero. With the Dow closing within 100 points of an intraday correction low on Wed, there may be a quick bounce trade Thurs/Fri, but you gotta stay up for it. At this stage it looks as though the indices want to test the 2002 lows and that might be another place to take a stab at a long bounce. In the meantime, I should focus on diving, surfing and learning mi pidgin.


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