THE BIGGEST RISK TO THIS MARKET
As regular readers know, the market traded higher in March and April due in large part to the expectation of government intervention. The government essentially lined up a series of events that investors could cling to optimistically. The stress test was the last of these events. The most important facet of this intervention was that it removed a lot of uncertainty in the market. Like a parent holding a child’s hand there was nothing to fear in the market as long as the government was intervening. Now that the government has effectively recapitalized the banks via the private market and given the banks another 3-6 months of life investors can breath a bit more easily, however, dad has left the room for now and the children could get unruly in short order…..With the government out of the way I expect the market to begin trading much more naturally now, i.e., based on its real fundamentals. This leaves the door open for uncertainty to creep back into the room and investors hate nothing more than uncertainty.
Interesting day today. A little ramp up in the afternoon, ostensibly due to Greenspan's comments about the housing market bottoming. What a bunch of B.S. from a guy that should be completely discredited by now and shunned instead of given further speaking engagements. Aggravating.
The VIX just keeps drooping. Complacency just before the going gets rough again?
I still don't feel comfortable getting short this market via direct equity. I am long Yen which is a pseudo short, but that's about the extent of my downside exposure right now. Retail sales tomorrow will be important. I still believe the consumer is and will be weak for years, but it could take some time to disrupt the bullish feel that's overtaken this market of late….
but, when it feels like a bull mkt, then it is time short