A Trip To The Flatlands

Now here’s the point: From a macroeconomic perspective, the market is sitting
on a razor’s edge and could go either way. It’s
not just that there is no clearly defined trend.
It’s that the market could literally explode in either direction.
If the sociopath is brought down from the mountains in chains or a body
bag, the markets will explode to the upside — even as defense stocks are
likely to falter. 

The big dangers to the long sellers are numerous and include: A pending
collapse of the Argentine peso with ripples throughout the global financial
system, a probable meltdown in Israel, a highly probable U.S. attack on Iraq and
possible disruption of the oil markets, renewed hot warfare between nuclear
nations India and Pakistan in the wake of the attack on the Indian parliament,
the beginnings of a “beggar thy neighbor” strategy of currency devaluation
by the Japanese to lift its economy up by its exporting bootstraps — at the
expensed of its Asian neighbors and at the risk of a destructive round of
competitive devaluations, and the continued onslaught of bad news on the
earnings and forecasting front for most American companies.
Of course, the biggest risk of all is Bin Laden slipping through our
hands or pulling off some new act of treachery and terrorism.

In the wake of all this random risk, the most conservative strategy is going
flat for a few days or a week or even two. 

More aggressively, you might pursue some option strategies (see the
master on that — Tony
Saliba) that would capitalize on large and violent movements to the up or
down side should any of the events listed about move the markets as expected. It
doesn’t mean you are not engaged in the market.
While you are flat, you should be finding your next targets of
opportunity even as you plot your next moves based on some sound scenario
building. So don’t just do something. Sit
there!