trade like the wind


My Dear Welfare Bulls,

Let me start by offering my sincere congratulations. Over the last 26 months, as the “markets” have accommodated your increasingly outsized, though consistently baseless, notions of your sizable acumen, I haven’t really taken the proper time to tell you what a fantastic job you’ve done of prospering. And bravely, wading into the maelstrom of MASSIVE SHORT SELLING and PERVASIVE BEARISHNESS to stake your contrarian claims and reap the abundant rewards.

Except for, no. I mean yeah, you’re awesome because you got richer over the last couple years. Which is awesome because, as anyone knows who has ever examined the purpose of living, it is clearly: as you live longer, get richer. Because then, when it comes time to die, you won’t look around and be like, whoa, where’s all my afterlife money? It’s gonna be fun, to look around and not do that, just as you shuffle off this mortal coil and “take stock” (which is a funny pun, for this post, lemme tell ya). And I hope to be there, and take pictures, and revive this blog by posting them here, with captions of joy.

No but seriously, we’re all grown-ups here, so let’s cut to the chase, because we all know that trading is serious business. It’s like the Boggle of chart squiggles. It’s like killing Osama Bin Laden, over and over again, into a dirty sock you found lying near your boxer shorts during the bots’ 11:30  green stick paint party. Put on a trade or two, and you can almost rech out and touch the afterlife money, because while those squiggles are boggling it all feels nothing like the fiction the satanic poor have erroneously claimed it is for centuries, not so much with their mouths, as by existing, and just staying. fucking. poor. all the time, like total assholes. What a rush.

Anyway I digress. When last we met on topic, I was all like, locating you in the latter portion of that whole hotornot world view. And I want to talk about that for a minute, if I can manage to remember I do, because it’s important. People who “watch” the “news” (ok, I should really say “People”, but who has enough airquotes these days, anyway?) are hearing all these fantastic daily reports from the stock market, and those that never peek under the hood–that is, all the normal people–have no idea that there might be more to it than the relentless happy headlines of the “Dow Jones rose seven-tenths of a percent today” and the “NASDAQ was up 16 points on volume of 2 quillion shares”. And they have been relentless, since March 2009. This is wrong, and that’s a subject for another post I likely won’t write, but I can’t help wondering, “OMG what if they knew??? OMG!

See the thing is, you’re a sham. You might be lovely, down-to-earth people in real life, with your boxers back up around your waists. But as you have sat down and bought this market over the last two years, you have purchased a sham, which has made you partial owners of a sham, and as we all know, in America, until your last asphyxiating gasp when you are transmogrified into the sum total of your afterlife cash, you are the pile of crap you own, so by the transitive property of American Economics -101, alas, you are a sham. Even if you sold it all back like the good clever boys you are, a thin film of sham-spores lingers yet in those places your washcloths don’t reach.

Now those of us not so fortunate to be mainlining the welfare-bull kool-aid are frequently admonished that the markets are not the economy (godcannotwaittodismantlethisone inanotherpostishallneverthelesskeepnotwriting), and that you have to “trade what you see”, and that what we have seen is a fantastic opportunity.

Trade what you see.

Uh-huh, uh-huh. Now I assume this is meant to refer to “markets”, open, free, transparent, efficient harbingers of the myriad greater goods (ha! more pun!) deployed capital has brought into our lives. Only, as any two-bit blogger can tell you, what has been “seen” by market players here over the last little while is a buncha free cash, courtesy of the Federal Reserve, and by extension, taxpayers present but especially future. Now normally, when some government-affiliated organism (the Fed is ex-government, but obviously plays some very serious governing roles, and has had a permanent afternoon appointment in a highway motel with the Treasury since the good old days when a Goldman Sachs leader led it openly, as opposed to by background regulatory capture) hands out money, this is called welfare. This is, natch, where you earned your Street name. When you appear on tv, you like to talk about this rally being “liquidity-driven”, because then it sounds like you’re doing something professional, as opposed to lining up and cupping your palms for the ducat-pour like the aforementioned asshole poor, whom many among you enjoy criticizing for creating this crisis by suckling at taxpayer teats and borrowing beyond their means.

What is less often reported on the news is that the ducat rain (the conveniently euphemized “bailout”, which makes it sound like we’re all saving a ship before it sinks, as opposed to tapping out lines of blow and handing pirate banks rolled-up benjamins as we set merrily off to sea) has never ended, and will not end as long as interest rates remain at essentially zero. So sure, banks can take my hard-earned dollars that I deposit in a savings account and leverage the shit out of those while paying me a few basis points’ (the jargon name for “hundredths of a percent”, sounds waaay cooler) interest. But why bother doing that, when they can borrow money for nothing from the government, buy a treasury bond, which is a form of loan to the government, and collect a few percentage points in interest–hundreds of basis points, which sounds very cool indeed–at zero risk or outlay. In other words, on welfare, borrowing beyond their means, at least compared to way back when banks were required to act like actual fiduciary institutions with, y’know, accounting and stuff.

But clearly, this is not what you welfare bulls have seen. You’ve taken a hard look at all that’s created by a feedback loop of manufactured cash (of course it’s not the Fed printing money, stupids, it’s the financial industry) with zero responsibility to lend, hire, or invest, and you have called it “good business”.

Many among you are fond of pointing out what a good predictor markets are of future economic activity (which is, of course, horseshit of a higher order still, and by the way impossible if the economy and the market are two different things, so which is it, sound reasoners?) and we can look to a chart like this one to confirm your irrational thinking. I mean, look, just look at this record of

Corporate profits in Current Dollars. IVA stands for Inventory Valuation Adjustments and CCA stands for Capital Consumption Adjustments. All indices are seasonally adjusted at annual rates.

Per “Bloomberg”, whoever he is. So what do we “see” here? That around the time the ducat thunderstorm began, profits had plunged? That the market correctly predicted how they’d snap right back? That corporations are seriously outperforming the entire history of themselves?

Yeah right. How about this: the most obvious thing in this chart is that, starting around 2002, or about the time our glorious housing bubble switched from straight horse to speedballs, corporate profits went parabolic, in what is clearly a long-term unsustainable exaggeration of an otherwise steady trend. They dipped briefly while all the houses that had pretended to have value during ramp 1 proved to be worthless, and then corporations dumped their employees in a massive refusal of domestic social responsibility and a win-win outsourcing to countries where brown people will work for a sliver of a ducat per year, and then initated ramp 2, a.k.a. the further refusal of the history of mathematics, statistics, and humanity that calls mean reversion a thing of the past.

The number-one thing to “see” here is that the mild market speed bump that was the biggest financial crisis in several generations, and the most globally concerted ever, should have been a healthy correction for corporate America. It was not, despite some nagging questions, e.g., Is our economy 70% consumer-driven, and are corporations failing to employ consumers? Deft workaround answer: Sure, but the rich ones, and all the new ones around the world, will make up for those asshole poor folk. Plus, it’s time to put an end to welfare, Medicare, Social Security, public education, and government (big asterisk for that massive corporate-socialist government policy though, natch), so those people will likely just quietly die off, afterlife-dollarless, leaving only the hardworking, worthy non-assholes behind.

We had an opportunity to improve our governance, our thinking, our planning for the future, our collective fiduciary responsibility and management, and we did fuck-all, jack-shit, nothing. Oh I’m sorry, not nothing. I mean, have you seen the index averages?

For now, of course, What You Get Is What You Decide To See, and that has stood you in great stead for what is becoming a long while. But I am confident this clarity of vision you have brought us will,some years from now, stand about equal with bleeding hundreds of words in a contortion act attempting to prove that Wall Street might be wild ‘n’ crazy, but it ain’t criminal: visions of sugar(daddy)plums, the stuff of wishes, and proof of the fact by the required intricacy of the denial. What you have decided to see these last two years is essentially what the financial arm of our national leadership sees, which is that we can wallpaper over decades of horribly short-sighted, cutthroat behavior that has spilled over into persistent, institutionalized, seemingly irreversible fraud, malfeasance, and graft, and flip that house before the paste peels away. I am not a buyer, and look forward to seeing you all in foreclosure.

Yours very sincerely,

Unexpectedly, Inc.

This blog died because I quit trading. And I quit trading because this rally made–and makes–me ill. That’s the short version.

But tonight I realized just why it has bothered me so much more than mere regret (I have none, actually–I have years and years to make money, and it’s just money anyway) or simple frustration with the failure of mean reversion, economic and financial fundamentals, etc. would. Am I pissed off at the “success” of American companies at the expense of our earnng and purchasing power, not to mention their former employees? Yup. Am I furious at the lack of actual Hope or Change from a “government” that promised nothing but? You bet. Is our investment and/or banking sector the biggest boondoggle clusterfuck since our 19th-Century railroad industry? Oh my sweet heavens YES.

But that ain’t it.

Here’s the problem, freshly discovered: when I decided to start trading full-time, 16 or so months back, I made a compromise with myself. Even though measuring what I share with Yer Avg Trader from a political point of view would make a teaspoon feel roomy, when I started trading, I agreed to abide by Yer Rules. I agreed that I would not shout down every half-cooked, mouthbreathingly-adolescentishly-Ayn-Randian, loutish notion about the power of free markets to benefit everyone, the universally and historically unchecked goodness of capitalism, yada yada yada. I would take the so-called principles of finance at so-called face value. It was about trading, about markets, about business; it was not about how Yer Avg Trader or I looked at life outside the market.

The thing is, said Yer Avg Traders have done a subtle, glaring about-face. It’s pretty widely agreed that this rally is about the non-failure of the financial system (thank you world government bailouts), the ubiquity of cheap money (thank you world government interest rates), and the lack of substantial new regulations (oh gosh I’m flushed with sycophantic joy, thanks guys once again!) that would “hamper” “21st-Century” “free-market” “capitalism”.

When you add all that up, you get outright pinko commie socialist fellatio. Not of the individual variety, mind you; American citizens got six weeks of cheap cars, a half-open window of “mortgage” renegotiation, an unaccountably vague viagra shot of stimulus to the package, and a tax credit or two, all of which sucked up untold months of demand down the line, solved no problems, and left in its wake massive disgruntlement, mucho confuzione, and a generally lowered standard of living (at least, below a certain standard of living). A pittance, however, compared to the shit-ton of jobs and equity and life’s savings and even savings-account interest we lost, not to mention, oh and here’s the big kicker, the huge-ass bill we and our children and grandchildren were handed–here comes that “socialism” part–to subsidize the failure of “21st-Century” “free-market” “capitalism” and its eventual foray back into the exact same motherfucking territory.

The accurate free-market response to all of this would have been an up-high, out-loud, heard-the-world-round FUCK. YOU. All this government meddling would have destroyed a real market, and the level of revulsion would match the greatest troughs in history. Oh and you traders, you said it, didn’t you? You keep on saying it.

But your credibility is shot. Anyone who’s been an active bull trader in the last nine months is a socialist in deed, pure and simple. An anti-free-marketeer. A welfare mom. Forget the endless blathering about “the government fucks up this and that”, “the Fed is our enemy blah blah blah”, because the courage of your conviction has been to drive this “market” ever higher, not on the basis of real free-market recovery, but of government-sponsored, unfree-market “recovery”. Talk is cheap; trading in an economy that has ground to a generational halt should be very, very expensive, but you two-faced profiteers have made it as cheap and useless as your doublespeak.

So on behalf of the free-market philosophy I embraced nine hours a day for months and months: Fuck you, socialist bulls. You go ahead and trade your handouts. I came to trade business. Call me when you drop the pull-ups and the training wheels. Call me when your words and your actions close the indefensibly yawning gap they’ve come to straddle.

I will be brief, because most of what has happened in the “markets” over these last two weeks is ununexpected, and if you’ve read this blog at all in its few months of “life”, you know I think it’s long overdue. The technicals look the worst they have since the rally began; the fundamentals continue to underwhelm, but may have caught that bid for the first time in months, for any number of unknowable reasons.

While we can scream along overbought for weeks on end, a lot of watchers are talking about a two- or three-day-old oversold signal as a signal for a bounce. What matters now is to watch whether this beginning of a correction is the real deal or just a temporary blip of fear on the way to further greed and nonsense as we try to close out 2009 as the year we fixed everything without doing a damn thing right.

Without further ado, your recaps:

And a few other links you ought to follow if someone hasn’t led you there already:

Be careful out there.

Ah, poor sweet neglected blog. Here, let me pet you some. Pet, pet, pet. (If you require no petting, or if you just want the recaps, scroll on down to the bottom there.)

While you, Fictitious Reader, have undoubtedly failed to remark my absence from the “blog”-o-“sphere”, being as you are non-existent, the explanation is pretty simple: there isn’t much need for a blog to discuss markets and tech and innovation and exciting developments in the world around us when the whole of this summer and fall has essentially been devoted to flying down a half-lane one-way road in a souped-up equity-market Maserati with reverse ripped out. The slight bumps? Those were ordinary people and interesting possibilities getting run over. Nothing to see here, keep moving, folks. That wall up ahead? It will dissolve, video-game style, as you cruise through it and pick up a bonus 5% of profit for… well, just for being in the damn car.

That’s right, we here at Unexpectedly, LuLzC haven’t see much to discuss, because we haven’t see much going on, and we sure as shootin’ weren’t in that car, or indeed anywhere near that road. Sure, I could add another rant about the gap between Streets Wall and Main, blah blah blah, or synthesize my many distinguished twitter posts (and the many more that are totally indistinguishable from thin strands of drool) into something to use up your time and mine, but why bother? These are, as I see it, some very sick times, and as tends to happen when illness is in the air, we all get a little sick of it (ha!), and slow waaaaay down.

So why break the silence? Well, there are some interesting technical and fundamental things going on this week. (Remember fundamental? Neither do we.) Earnings season was clearly meant to have us get up and go the way the last two did, but some of the big winners have charts no better than the week before, and darned if those $BAC and $GE reports didn’t sound just a little too late-08/early-09 for comfort. When was the last day max pain was inflicted on an OX Friday with violent downward action? Yeah, stuff is happening. Will it matter? Likely not.

The weeks-old explanation of this “rally” (which by some measures must be called a bull-market rally, though we will apply that term over our own dead bodies) chez UnexpectedlyNotDotCom is that the two or three market-moving institutions still in business are not really competing with one another, but rather have seen for several months that no one was really in the mood to sell, and are using these “markets” and this “momentum” to repair 2008 damage to their balance sheets, their client bases, and their PR departments with fantastic 2009 results. Not a conspiracy, mind you, just a lack of competition, an agreement that we-are-all-TBTF-not-to-get-along. Those quick green bars I love to harp on? Open communication, one desk calling out “game on” to another. If you’re retail and long, you benefit (not that the titans give a shit about you–if they don’t get your trading account, they’ll get your taxes!); if you’re short, you get steamrolled in much the same fashion as Wall Street has, in a larger sense, flattened the rest of the country.

This blog started with the rally already on, and got rolling with some thoughts on just how much bad news it would take to end it. Clearly, “much more than there is, even though there is plenty” is the hindsight answer. Again, I don’t believe this is about the individual participant, or the combined activity of individual participants in the real markets that creates what is inappropriately named “fundamentals”, but rather about the absence of individual participation. Meaning that the average American joe is far too pistol-whipped to leap back into these markets, fingers crossed, and bet what’s left of the farm on another month or two of green candles to straddle to the moon. Wall Street does not particularly give a shit about bad news, as we have seen. They are worried only about (1) not being bankrupted by their own bankrupt behavior, (2) not being bankrupted by the government’s bankrupt behavior, (3) not being told what to do by said government, and (4) telling the government exactly what it may and may not to do to help them expand bankruptcy of behavior without danger of bankruptcy. None of these things has much to do with news, at least, not of the public kind.

Here’s the short version: Wall Street has this market by the testes, and doesn’t give any more of a shit about the economy, or the news, or the facts than it does about me or you. It doesn’t care about the alarming ramp in the foreclosure rate (highest ever!),  the disappearance of consumer credit, the divergences in super-duper bank earnings, the punch to the face venture capital is taking, the alarming ramp in the problem bank list, the alarming drop in small-business lending, or the odd arrival of survivalism in the mainstream market. If you read the news and watch the markets, you don’t need me to tell you these things, because you can watch it unfold in real time. If you don’t read the news, follow those links for a comprehensive picture of just how much October 2009 resembles October 2008. Nowhere fast is where that one-way road leads, and one of those walls will prove not to be virtual.

So we’re coming into the second big week of earnings, and I note in passing that the first big week was the smallest first big week I’ve seen since the rally began. Where was the off-to-the-races up-4%-5%-12%-FTW? This week’s movement of 1.3% or so can all be attributed to breathless anticipation of this week’s movement, and that’s not collusion, folks, that’s premature, um, enthusiasm, and on Friday we broke out the kleenex and the apologies. Should get stickier (yikes, sorry) from here. Let’s watch together, shall we?

Is there any ado left to further? Your recaps:

  • Market Talk (concise commentary, no charts)
  • Cobra’s Market View (annotated chart analysis. His rules have been struggling a lot of late–surprise, surprise–but he still offers great charts and perspectives.)
  • Dave’s Daily (annotated chart analysis. A new one for us the last few weeks, great stuff, highly recommended RSS.)
  • Tickerville (video chart analysis, ~17 mins.)
  • The Chart Pattern Trader (not one but two vids, a bit too rambly for my taste, but lotsa education for noobs)

And a bonus chart of the week: Government expenditure vs. receipts, 1947-2009, courtesy of Société Générale

Be careful out there.

Two points I’d like to hit tonight before the recaps, which you can always just scroll down and click through to.

First, today’s consumer confidence report. It is down, and as the link points out dropped below the lowest analyst expectation, never mind consensus. The cutoff date was July 21, well into our current rally, so the market movement isn’t helping, as it often does.

I won’t bother rehashing the data as fifty trillion other blogs do. I just want to point out that consumer confidence dropping as the market rises is a bit of a bearish divergence. In a nation where the DJIA is reported as part of five-minute news updates–as if it had some relationship to reality on its best days–consumers know what companies are reporting, and how it’s moving the market. And they’re still, erm, concerned. More concerned, I would venture to say, than traders.

Yeah, well. “The tape” may be “ignoring the macro” for the moment, but the consumer isn’t, and if the consumer continues to fail to ignore it, “the tape” will have to listen. See, a lot of people say that the Conference Board isn’t really a good indicator of the state of the economy, because people can change their minds pretty swiftly. Guess what? Same with the market. The number of very good traders I hear table-thumping the new market strength off 12 days–I’m sorry, that’s 78 hours–of trading activity may well be right about where we’re headed next, and are trading it accordingly. Consumers, on the other hand, have an equal claim to being right–it’s all speculation, after all, and I’ll believe in the failure of any and all attempts to presage until they prove to have been closer to resulting facts–and are living it accordingly. In the vast behemoth that is the economy and its “stakeholders”, I prefer to listen to the livers over the traders. That’s just me though.

Second point: a lot of these same very good traders have been supporting their bullishness for months on the claim that the beats are massive, and the price action is massive, and pretty soon money managers are going to start playing catch-up. Problem is, in a 4-month window of opportunity–I’m sorry, that’s 1/3 of 1 year, which is a fair amount of salary-earning, business-creating, and redemption-busting–these managers haven’t. Not based on volume.

While traders have gone on a 78-hour mouth-frothing marathon of momentum the likes of which we haven’t seen since at least, oh, four months ago, but under an opposite vector, I’m not sure the “earnings beats everywhere!” and “we’re goin’ to 1000!” memes have taken hold as much as some very good traders are saying, at least among the community of money managers they think are gonna start chasing this… tomorrow.

Without further ado, your recaps:

Good luck out there.

For today’s market metaphor, we scrabble up the slippery slope of politics. Yeeeeah. This is not a political blog, so bear with me as I present this next little bit as an example of what I’m seeing in the markets. Or just scroll down for your recap links and save us both the trouble.

There’s a particularly unsightly little bit of “satire” floating around all the internets called “Obamopoly”. (I don’t link scurrilous effluvium, but the Googles will helps you finds it.) With only slightly less nuance than a sixteen-pound gutter ball, it attempts to present the actions of our current government as reaching deep into our economy, Kindle-style, presumably creating some sort of nasty “monopoly” over our lives. Uh-huh, uh-huh. Wait, what? Forget about the screeching whine of rightist amalgam politics here; the graphic doesn’t even make sense. In the board game, players compete, against each other, to establish full control of the board. Not unlike in our economy, the adversary is not the game itself, but the competition. Half the “properties” in this failed bit o’ wit (they couldn’t even pull off a good name) don’t even “belong” to this administration, but to its predecessor, who would have made an outstanding player if only he could have read and counted.

Still, not much value (though plenty of fun!) in dismantling idiotic humor that fails to be clear, or instructive, or, y’know, “funny”. What’s particularly disgusting about this Obamotacolepsy bit o’ half-wit is the replacement of the classic “get out of jail free” card with a “race card” that allows the holder–again, some confusion over who’s playing and who actually is the game here, but oh well–“get off scot-free”, to be “used repeatedly as often as needed”. (Oh really, repeatedly and as often as needed? That’s pretty often, and also quite often!) Implying that somehow, in all the Big-Brotherization of our otherwise robust and thriving free-market economy, it’s all about those pesky minorities and their vast monopolistic game plan.

Anyone who failed to see that electing the first minority president in our country’s history was going to bring out the cracker honky redneck racists in force has been living under a rock the last, oh, entire history of the country. But placing government intervention, and the efforts–however valid–to save this wrecked economy, at the doorstep of race? That is hysterical, in at least two senses of the word.

So, the markets. (No, I did not lose my train of thought.) You might have noticed, we have a two-week near-vertical rally on our hands. Very, very strong movement, earnings-driven and technically sustained by… well, exactly the same Technical Analysis 101 that keeps not working in the market’s various failed attempts to pull back and correct.

Dispensers of trading wisdom like to remind us–at least a couple in the links below do–that the markets are “irrational”. I’ve never really understood what this means, since “the markets” aren’t a person or a mind, but a collection of haphazard buying and selling that either coalesces, or does not coalesce, into trends of varying lengths, redistributing, creating, and destroying money as it goes. Ascribing human characteristics to its movements is like mixing up the game played with the players; the market is nothing but the results of a lot of human actions. It is untouched by winning and losing, cold, inanimate, indifferent. Doesn’t sound particularly irrational to me.

The players, on the other hand, vary in levels of irrationality from player to player and day to day, and now I come to my point: this rally, and the price action of these two weeks, it seems to me, demonstrates a near-collective hysteria. Many of its component parts are irrational–two-fisted buying on so-so earnings, short-covering in the face of a pullback that just won’t come–but what raises its pitch is the conviction that the bottom is in, the risk is acceptable, and the reward not to be missed. With a couple intraday exceptions, there hasn’t been any dip-buying the last two weeks, because there haven’t been any dips. If you buy XYZ at 9 and sell it to me at 10, you’re a sucker, because I’m selling it at 11. The lack of volume probably means I’m selling it back to you, but that’s ok, because we can keep volleying it back and forth, all the way up to a zillion, because this is a vast opportunity.

If you’re unfamiliar with my broader stance, you can read it here, but what I want to focus on in this post is the desperate character of the buying we’ve seen since March. Granted, that adjective is a tough sell. It’s much easier to describe selling like that of January-February 2009 as desperate, because prices are falling, and fast, and falling is perceived as negative, and fast is more negative, and desperation is a negative state. Pinning the adjective on buying is much trickier, because when as we’ve seen since July 7, prices are rising, and fast, that’s perceived as positive: rising means prosperity, and rising fast means confidence in the prosperity, and what’s desperate about that?

All the same, I think all it takes to get to hysteria–the root of desperate market action–is a nimble leap across the chasm of thinking, a la the Obamochrestomathy cretins. That leap has come to us, indeed fallen from the sky and landed squat on our faces, in the form of defeated analyst expectations, and by an enormous margin! Oh, except in revenues (yeah, same link, don’t click it twice). The players in the market are frothing at the mouth with joy, because analysts who were cooking up their thinking with a spoon and a bic back in December ’08 fell well short of all the goodness we were going to produce.

The thing about hysteria is, you can’t fight it. It only takes one simple chart to show how utterly imbecilic it is, but it’s impossible to stick a fact-pin in market mania and burst it. (I recommend trading [or not, if you’re me] accordingly.) This is probably owing to the fact that Obama is not a white man, and has wrecked facts in the name of greater minority dominance. This is why all your TA 101 is belong to us. Except the hysterically bullish kind, of course, which has been working a treat.

Without further ado, your recaps:

Good luck out there. And try not to lose your head.

Perhaps I’m growing paranoid, but the impression I have is that those not outright ignoring Unexpectedly LLC pay the most attention when the market is moving the direction they believe we want it to go, and that that direction is down.

I’ve said so several times here, but though I’ve been trading bearishly (and mostly unsuccessfully, as I’ve stated quite frankly here) for the majority of this rally (still the same one, kids, nothing new started last week, because the first rally never properly ended), I am not a bear, but a skeptic. For purposes of simplification and future linkage, I am now outlining this distinction in detail, and pretending that this is the Unexpectedly Corp. position.

First, the technical reasons I’m skeptical that this rally is the real deal:

  • Volume. Still sucks, never picked up, not last week, not in all 4 bloated months. In fact, after some very nice volume in March and early April, volume has declined. This is traders popping traders, and HFT/Program Bots popping us all, to the tune of as much as 73% of said metric.
  • No correction. In a bull market, correction is a normal part of short- and intermediate-term movement. Were this a new bull market, every dip would not need to be bought, nor would a couple of days in a row down make every bull in the land pull his apron up over his eyes and wail. We don’t go down because we can’t go down, because the longer we wait to go down, the greater the likelihood we go down hard, instead of just a bit. Best to keep on melting up.
  • Risk/Reward. While there have been plenty of great opportunities in plenty of great individual names on the long (and short, for that matter) sides, index movement since late April has been pretty range-bound. Sure, you can catch those tops and bottoms and play that range; I doubt as many traders have done so as claim to have. See the above point; each time we come down to the bottom of that range, the risk grows that we don’t hold it. Risking another 15, 20, 40% drop to gain the 10% or so available since late April just doesn’t make mathematical sense to Unexpectedly Labs.

But the vast majority of the Unexpectedly Holdings point of view–stop your ears, traders–is fundamental, macro, and (gasp!) a tad populist, and despite trading losses, some significant, owing to short-side trading that should have just been cash hand-sitting, it’s no time to dash into the fray just because a few days’ of charts say here we go again. Those of you who have are to be congratulated on your “rightness” or “good fortune”, however you choose to see it; those of you who will continue to do so are wished well, especially as a few more days of charts can always tell the exact opposite story. Very bad news and analysis, on everything from commercial real estate to European banking instability, is out there every day–today included–and ignored, or at least taken for granted. Until it isn’t.

It bears (hah!) mention here that this is not a trading blog. Sure, I link recaps and point you toward great trading analysis. But that space is overcrowded as it is, and for reasons that have more to do with quality of life than quality of greed or fear–U. Enterprises draws that line dark and thick, and never crosses it, since trading,  however engaging and artful a pursuit, is a poor excuse for productive work–the central preoccupation here has been, and will continue to be, what makes sense.

Past its initial stages, this rally has made none from these seats, except to the investor/trader class, institutional or individual, that continues to bid it up. It is a tractor beam for whatever average Americans’ wealth has yet to be destroyed in this massive cataclysm, and a tremendous source of short-term (and, some will later say, ill-gotten) profit for the two or three trading banks not put out of business by their own embracing of Risk Is Reward for the past decade, and therefore all the more to be avoided.

2008-2009 will be remembered for a number of narratives that have yet to fully emerge, and one of them, whose lineage can be traced from complex derivatives and mortgage securitization straight through to the burgeoning focus on HFT, is the divergence in intent between trading and investing, and the persistent mischaracterization of the former as the latter that has made dupes of a lot of people who wanted “above-average” return on their savings while they were too busy “working” “actual jobs” to go get it for themselves, and believed Wall Street existed to provide it. The Street has proven not to, perhaps now more than ever, and we believe this rally will ultimately prove to have been another privatized profit and another socialized loss.

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