Diary of a Financier

What More Can I Say?

In Capital Markets on Thu 8 Sep 2011 at 00:12
  • September 8, 7:00pm EST- President Obama addresses Nation (delays NFL season kickoff) about jobs bill.
  • September 20 & 21- Federal Reserve Open Market Committee meeting, culminating in Ben Bernanke press conference; QE3-related announcement expected.

What more can I say? That’s all anyone looks forward to. That’s the only thing worth trading for. Politics. I’m not complaining, because I’ve played the political psychology game for 3 years now, and I’ve made a lot of money at it. I’ve told many to stop whining about ‘this market is impossible because politics are involved.’ (I mean, here’s a tissue.) I’m just saying that I’m doing the smart thing and laying low in the interim.

Part of why that’s “smart” is because I can’t find any clear signals: the technicals, the fundamentals, the story, and the mouthfeel are all sour for the long-term. For that period, the Market is tipping its own bearish hand. The Market will not allow the Eurozone to slip away without someone eating maximum pain like that giant dude in The Green Mile. Perhaps due to the political waiting-game, a pall rests atop traders’ tradestations, personified by the volume-less recovery rally over the past week, which volume-less-ness has personified our new-normal since 2009:

ES volume- no volume to back this recovery rally

I won’t even mention China in this breath, since America has her own issues too. So as not to re-reiterate everything again, I’ll only mention that President Obama should not enact a vanilla ‘rebuild bridges & roads’ infrastructure bill, because such measures render no sustainable monetary velocity. America will not attain 5% real GDP growth in 2013 because she drew on a HELOC to seal the cracks in her driveway. The S&P 500 might rally on false hope, but the “wealth effect” cannot solve anything.

Same goes for QE3. It’s useless without a fiscal supplement. The Fed is frustrated that mortgage rates are low but tight credit standards are blocking refis. The public is frustrated that it bailed-out the banks but the banks won’t lend. To the extent that monetary easing will be advisable henceforth, fiscal measures must invoke the prudence of credit extension, because none exists here now.

But, the problem with this bearish long-term read is the counter-argument provided by intermediate-term technicals. If I had to weigh-in, the short-term looks bearish.  I completely lack conviction in the short term though, because S&P 500 E-mini Futures (ES/) have traded in neat cooperation with Fibonacci support levels & regression channel support, which suggest a continued rally:

ES daily- having bounced off a fibonacci level & holding its regression trendline, ES doesn’t looks lost between a relief rally up over 1200 & a retracement to recent lows.

ES daily- to trade up to Fibonacci arc (1200-1220 target) or down to regression trendline?

…and weekly fractals have been a bullish thorn in my side for the past week-plus.

So what have I done, given my uncertainty? I bought short-term volatility protection in VXX over the last two days. Technically, I like the position after Wednesday’s trades. It’s not the cheap volatility I accumulated as an outright trade back in April, but VXX will protect our portfolio from continued schizophrenia.

I have a paltry 14% long equity allocation against 5% short. Like I said last week about equity markets, a monthly fractal overlay of SPX v. Fed Funds Rate shows that this point of stocks’ descent is often [always] where monetary easing saves the slide. Charts suggest the long-term still bearish, intermediate bullish, shorter-term waffling.  This lack of cohesion is why I choose to “lay low” here–happy to trade the trend after it emerges, even at the sacrifice of missing the swing. Historically, monetary relief is instantly discounted by the market, while fiscal stimulus often takes longer to set-in. Thus, I don’t think I’ll miss a runaway stock surge after Mr. Obama’s delivery.  At very least, the market won’t anticipate this monetary relief until the week after next.

I worry about the stability of my 55% high-grade fixed income allocation after the recent blitzkrieg rally–especially TLT. (Most all holdings are actually single-names.) Fixed income is fine for now, but it feels funny after a two-sigma spike. I worry about those bonds more than my 3% Gold (GLD) or 4% Silver (SLV).

Other than that, have you noticed LIBOR creeping higher in a straight line–just like last year’s post-QE1/Eurocrisis? Have you noticed the surge in the Baltic Dry Index? Correlations are crumpling. There’s something more to this stew, and my nose tells me it’s not the garden-variety.


  1. Very insightful and entertaining. Libor trend is interesting especially since over the past two years, many US banks lending to small business converted from tieing their variable / floating rate from prime to LIBOR. This can’t be good for small business.

  2. […] bearish on the short-term now, having “layed low” for the past 48 hours due to my indecision. (I’m proud of my patience.) I tried buying a slug of the US Treasury TIPS ETF (TIP) today. I […]

  3. […] thing is for sure, as I mentioned last week: Correlations are crumpling. There’s something more to this stew, and my nose tells me […]


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