Wednesday, August 22, 2012

Rising Prices, Near the Fiscal Cliff?

Nothing great is produced suddenly, since not even the grape or the fig is. If you say to me now that you want a fig, I will answer to you that it requires time: let it flower first, then put forth fruit, and then ripen. ~ Epictetus

I remember during the 2009 rally that everyone hated, I was continually playing the short side, most days the market would inch higher.  Sometimes 0.5%, sometimes 1%, sometimes flat.  The market rallied, it was the easiest money to make if you weren't stubborn - even my friend at the time who was totally new to the market would take any tip from forums and be banking 10% gains on every stock he purchased (he eventually got cockeyed and lost most of the gains, and probably still holding to the losers; but that's another story).  However; I unfortunately was very stubborn and stayed short, and I remember he giving me a present I will never forget - a teddy bear, with a sign around it's fluffy neck - "I know you like bears, but can you stop fcking shorting the market?" - I'm not really good friends with this guy anymore, but he gave me such a profound but simple paradigm - it actually made me THINK, here's a guy who has no idea about the markets; but he's giving me advice on the most simplest concept ever - don't fight the trend.  I will however never give back the lessons I learnt while struggling to make money shorting the market - the need for perfect execution, the eye for a small subset of stocks that fit a specific requirement, and massive massive dosages of risk management.
Now fast foward a few years, I know how to ride this current rally, no matter how hated it seems to be in the mainstream, AND I'm ready (hopefully) mentally to start taking some profits soon.
It's been 26 trading days since SP500 has registered a 1% decline, and this has only happened 5 times in the past 13 years. 

 



Fiscal Cliff seems to be on the agenda, Look what happened last year, the GS analysts are alerting their clients for the same scenario this year.



Nice summary of data in the past week, and changes in sentiment.

What could it mean that Thiel one of the first supporters of Facebook cashing out on his stake?  He turned 500k into 1bn.  I can't read into it too much; but my sense is that he knows social media may be topping or hard to monetize.

Australia growing risks of recession in 2013 with miners facing falling demand?

Asset allocation and the effects of rebalancing on portfolio return, simple but effective - 

Interesting that China is not currently participating in the current rally - 

The only stock that seemed to be off today was FMG - with iron ore prices continuing their downtrend - down another 90c to 109.30 - whether or not this bleeding continues will be of no concern if I see 1-2 more days of losses, I will cut this position; no tears.
I had two attempts last week to catch the eur/usd rise - being stopped out both times, now finally seeing the move.  Many times we are going to see a whole week of choppy action, and I might need to look for different trade setups in these moments - obviously equities and covered calls are one that seem to work well in drifting markets.  I'm completely out of my soft commodities position and closed off all my LULU positions pretty much near the 55 lows; very lucky indeed.


Those that are self aware and aware of their surroundings can learn by the osmosis of experience.  The ability to understand probability from a small sample is inherently dangerous, as forward extrapolation with empirical evidence has usually been the been the cause of the the high loss skews in financial models.  

Intuition of the markets comes from combining a large amount of data, much of which is sentiment, and a large dosage of market psychology; which is unduly dumbed down to price action - however the intuition that is available to the supremely self aware will be the difference between those that are shipping commissions their whole life vs. those that can accumulate huge edges over time.