Don’t Let The Big Picture Keep You Out Of A Trade
This past weekend I
attended a conference here in town dealing with Hedge Funds/Alternative
Investments. My initial reason to attend was due to the speaker line
up. Some of which I hold in high regard, some of which I was not familiar
with. While there respective thoughts on the market are not terribly important
as it relates to my column, I did find it interesting how the different speakers
assessed their views from a timing perspective.
The overall theme was one of caution and perhaps
below average returns. There were of course the more ominous forecasts, mainly
Richard Russell and Bob Arnott. A gentleman by the name of Martin Barnes of
BCA Research (fantastic firm and research)
stole the show not only for his incredible Scottish wit, but mainly because he
was able to show rather clearly that while all of these “problems” exist, there
was no need for concern at present. Naturally, any exogenous shocks, terrorist
attacks etc could change that, but by and large, there was solid empirical data
supporting a decent market.
Are valuations too high? Of course he said, but
that does not mean that over a 3-6 month horizon you cannot make money in
stocks.
What about the debt levels? Well we had those
same arguments back in 1956 when debt equaled 56% of disposable income and the
sky did not fall. The fact is, we do not know what level of debt to income is
too high.
Why didn’t the Fed just let the collapse of the
bubble run its’ course and cleanse all the bad out of the system? Oh, sure, and
go into a deflationary spiral like Japan. The decision the Fed made to flood
the system with liquidity was certainly the more palatable of the two outcomes.
He rattled off several more stats and charts
which showed that much of the concern regarding present market conditions is
perhaps a bit premature.
I guess for me that was the point in the weekend
when it was reinforced that regardless of one’s big picture analysis, one needs
to invest/trade today or for the next several months. While you need to be
cognizant of good and bad news you have to participate in what is being seen
now. As traders we have that ability to play in an environment where there is
always the possibility of bad things happening, we just trust that our abilities
to interpret the market keeps us out of harm’s way. The alternative is to sit in
cash and wait for something that may or may not ever come.
^next^
Granted, the discussion was of a longer-term
nature and was not directed towards traders. However, there were parallels.Â
Take an FX trade that I have on at present. I am short the
EUR/GBP. The trade was initially contrived
by looking at the stark differences in interest rates as well as economic
strength/weakness in the respective countries. Regardless of how compelling
these conclusions were, it meant nothing until the market recognized it. It
took a couple of weeks since the last time I had traded it based on these same
conclusions (look at a daily chart around March 15th). The market began to
recognize it again yesterday morning, as a result, another short was initiated.
As always, feel free to send me your comments and
questions.