NOT LONG, NOT SHORT, NOT PARTICIPATING…
By Surly Trader
Something just does not feel right. There are times when I just feel crazy for seeing the insane value proposition of stocks versus bonds, then there are times like today when I feel like the grind up is extraordinarily fake. I hate bonds right now because the Federal Reserve wants me to borrow money and invest in risky assets.
Now we are facing the dilemma where no security investment seems attractive. I am not going to do the analysis about how the nonstop grind up in equity prices is rare, especially after following such negative sentiment and volatility, but I think it is self-evident from the tight slope upward YTD:
n 2011 there was insane fear about Greece and the Eurozone, even though we knew about Greece and the Eurozone in 2010. Now, as it was at the beginning of 2011, we no longer seem to care about Greece and the Eurozone. Even more frightening is that it seems to me that the leaders of the Eurozone are preparing to eject Greece out of the EU monetary union under the premise that “Greece is a one off problem”. In the past, I thought that the leaders of the EU would suck it up, bail everyone out, then make them pay later while admitting that the Euro was a mistake. Now it seems like they believe that the contagion effects between the European sovereigns can be “ring-fenced”. I highly doubt it. If Greece is allowed to fail, then everyone is going to pull their money out of Portugal, Spain, and Italy. Good luck with that.
I do not feel that the EU debacle is going to unravel the global financial system, but I surely think that it is going to produce more volatility than the 8% that we saw in January. For now I am sitting on the sidelines, neither long or short. I will let inflation eat away at my cash rather than put capital at risk for what certainly seems like a very asymmetric payoff. It could be cited that the VIX exchange traded products are driving the VIX futures’ price action, but I feel that it is more likely VIX futures are showing uneasiness by those who trade it. Take a look at 5 year implied volatility – not dropping a bit.
This blog used to be great when Cullen controlled most of the content
Now that he’s let every man and his dog post on the site, it really has gone downhill.
Respectfully, I agree…..I still read the posts Cullen puts his two cents into, and I watch closely for his articles, but too many of these posts are adding up to filler.
I share your views, I still like this blog but compared to 12-18 months ago I think Pragcap lost much focus to the market.
Agree, losing individuality and outspokenness. CR going mainstream. Too much gained, too much to lose. Cautionville. Happens to the best of us.
Sorry guys. I’ve been distracted by a lot of stuff. Starting a new firm, managing the websites, developing MMR, etc. It’s proven too much for one man! Finding the time to work in high quality posts has become increasingly difficult. Thanks for voicing your concerns. It’s something I’ll attempt to rectify. A lot of this MMT arguing has been a big distraction, but that’s in the past now so hopefully I can get back to the good stuff. Sorry.
Cullen, while I do miss your more in depth commentary (who DOESN”T like FREE intelligent investment advice???) I personally don’t mind the other stuff.
It’s good to see diversity of opinion. And it’s easy enough to learn quickly which other posters to ignore and which to read fully (much the same with commentors).
I was a major contributor at a pretty popular blog for 3-4 years before I completely burnt out on it, so I know some of the pain.
And don’t take this the other way. I also have no problem with readers letting you know how they feel. It’s good to get feedback, which is why I’m adding my two cents. But this isn’t a democracy either.
IMO, don’t sweat it, man! No apologies necessary.
Been there ,done that, and the advice,if you wish to expand your productivity,get some help,but make sure it is the right kind ,and no i’m too old to volunteer
I’ve got some help, but the problem is that I can’t really leverage the kind of help I need until things are a bit more settled. I need more TIME! Once again proving that the ultimate form of wealth is TIME!
I’m sorry this came across as a criticism. More than anything I want to point out my appreciation for this forum. I have the utmost respect and understanding for another man getting pulled in ten directions at once.
I think we are just big fans of your insight, and the discussions following your posts seem to be more relevant and / or in depth.
I disagree with the three prior comments, and I find some agreement with the author of this post. Equities were attractive at the Oct and Dec lows, but not now. We are back near the highs of April ’11, and once again the equity markets are overvalued. Since bond yields are also unattractive, then maybe waiting it out in cash is not so unwise at this point.
Larry,
I agree with you. I like the diversity of opinion and what I really like, and what sets this site apart from all the others, is that the comments from the people reading the posts are for the most part INTELLIGENT! Even articles that one might think have little value often inspire great comment! Thank you to everyone!!!
Good times to play the future volatility card.
I went short through commodities on Feb 10th, specially silver and a smaller position in gold. In profit but not too much.
I shorted SPX at 1320 but got stopped out long ago, I don’t feel like shorting such a retarded market as it could go higher, but I’m comfortable selling commodities (probably will open new positions through options for limited exposure against oil next week).
As for equities, the position of the author is wise IMO, staying in cash right now is not a bad option, if you were invested since December to Jan or early Feb you already made a bit of profit (or at least have good risk controls with stops profits, don’t hold onto them).
Investing in European equities has been a beast, huge rally in the DAX, that was my preferred long through this period. American equities are marked-to-fantasy in my view (endless intervention and hope injections through decouples, soft-landings and other shenanigans), but… the market can’t be wrong right?
I trade vol just like Surly Trader does, and I agree with his observations. Seeing huge buyers of paper out of Europe, FWIW.
Who knows where markets go? I tried to follow VII on his SDS move but I am out as S&P went above my mental ceiling. Cash is not paying anything and I feel I need some return. Now will wait to see what happens. Should one have more conviction on a trade (stay longer) or start with the level you will not go beyond and stick to the plan and exit ? Cullen was going to build a short position but would experienced traders be adding more shorts here as the price of SDS goes down and becomes better value or wait for some sign that correction is here before starting? Age old question I guess
On my behalf, I have an options set up I’m comfortable with that should make me a nice penny and cover some losses from selling SPX options if the market goes south 5-10%. Been having this position since SPX 1300 and re position myself every 2 weeks at a loss. It’s ok because I consider the set up as ‘insurance’.
It’s been somewhat frustrating to watch the market grind higher and higher day by day but I’m not quite sure what would cause a sell off. Economic data is coming above expectations day in and day out and the market is ignoring all Greek/Portugese headlines. Sure we can I could go to Zerohedge and find something to fret about, but those guys are mostly hyperbole.
I have a similar set-up as I previously explained. Basis is about 2.5% out of the money. I like my chances of still making money on the trade, but this market is just a grinder higher….
No problem with the post itself,The man is just articulating the emotions that are being felt by many.Such a binary type of market where the outcome is political and therefore virtually difficult to quantify.Meanwhile it is self evident that the wrong polticial outcome offers a downside multiple times the upside based on any fundamental argument and where risk reward can be so skewed it is balls of steel to hang in there and fingers of lightening to be out when the crap hits’ the fan.
“The market can stay irrational longer than you can stay solvent.”
~ John Maynard Keynes
Perfect environment for a rally!