Diary of a Financier

Random Musings: Of Europe, Cisco, Value & Macro

In Capital Markets on Mon 26 Sep 2011 at 11:49

I wanted to check-in before midnight. I’m not going to post an entry every day about this market hiccup and that. I leave that business to the MSM’s craft of hyperbole and superlativism. Like I said yesterday:

Nonetheless, my positioning is quite neutral from where I sit this weekend. My biggest fear is the market running away from me to the upside, because these technical undulations have been a crucial source of profits this year, and I’m not reading anything bullish quite yet. I hate being reactive, so although a rally on Monday won’t bother me, a 5%+ move throughout this week would… just a confession from my inner super-ego.

Unfortunately, we got something to that tune today with SPX +2.33%, and US equity markets may legitimately pursue 5% on the week while Europe discusses the lipstick of EuroTARP, er EuroTALF/SIV/SPV… whatever. Not only will a “leverage” component cast the EFSF’s questionable AAA rating into downgrade, but it must raise near ~€750B in private capital to both plug the leaks and save Germany from unpalatable inflation. Yet, managers may be buying into quarter-end to beef performance, although that’s the oft cited/criticized bull-case for the cheerleaders at CNBC.

I bought Cisco (CSCO) early in this morning’s session. What can I say: I queued up an order pre-market and I left it to execute at my low limit. CSCO is joining some other [less competent/relevant] tech brethren in the land of deep value. (Note SPX trailing PE currently 12.65 nearing 2009’s lows at 11.89.) I’m ambivalent towards its daily fractal, but the monthly shows CSCO reversing off lows which most all composite index constituents have yet to grope:

CSCO monthly- rising from the bottom of a very deterministic trading range.

I let the trade execute because CSCO oscillated +1% to -50bps, seemingly scrambling for footing while broad markets charged ahead with sure traction. Given futures’ indication around 8am EST, I hadn’t expected an opportunity to catch a piece of today’s rally. Charitably, CSCO’s early swoon let me in. Then, not only did the broad market accelerate to a +2.33% close, but my CSCO ended +2.50%–truthfully a coincidental intraday outperformance.

Combined with my big First Solar (FSLR) buy in Friday, I’ve magnificently selected my tactical exposures lately. I’m still woefully underinvested were this rally to make an unexpected super-spike.

As an aside, I’m starting to notice that I far prefer discussing the macro–as opposed to micro–here in my diary. I’ve really withheld this commentary for too long, but I’m starting to notice that more liquid macro markets (like FX and sovereign bonds) are more conducive to deterministic technical systems than relatively minuscule classes (like equities). The notion is readily acknowledged in certain circles–hence the emergence of the “macro hedge fund”–but I’ve refrained from mention so I could study it myself. I can attribute such determinism to the homogeneity of consensus, as more liquidity diminishes the significance of noise. I’m trying to stick more with heavily traded, liquid singlenames when I can; particularly in modern market conditions, where small cap wonderkinds are under siege (something that dates back to my own short of the Small Cap ETF, IWM).




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