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| The issue for long investors is one of risk. As for day traders and swing traders there is not a single one of them that makes any real money. With larger investors, float becomes an issue because a 10K share transaction in low floats will move the price. This forces slow accumulation and makes a fast exit quite impractical. So longs have to hedge.
In order to hedge intelligently there has to be some reliability in markets and market news. Of late, both have been subject for considerable debate. The Flash Crash all buy itself has endangered every investor. Because the gov did such a miserable job of elucidating the cause and put into place no safeguards to block such a transaction, the potential is real for a Black Swan event. Once again the Gov protections of citizens disappoints.
So only a small trader can afford to not consider risk. Most of the people out here have very small portfolios. Those with more than a million in play, have much higher risk and don't deploy swing trading because it is not cost effective. Instead they hedge. They can hedge short but not for the short term. Large portfolios have significant tax considerations and you don't see much of that out here with the cryptic blabbers that talk pigeon. They are just the chump change talkers.
But back to a moment about information. A great example is your blood pressure. If your blood pressure was 210 over 160 the doctor should warn you of the dangers of stroke and sudden death. If you get your blood pressure tested the following month and it is 205 / 150, the doctor should warn you again of the dangers of stroke and sudden death. What he should not do is become euphoric with your second blood pressure and tell you have nothing to worry about.
This has been the activity of the hedge fund controlled press for the last week. They have become euphoric over a jobs report that was at best dismal an perhaps foreboding and dangerous. It seems their rationale is to woo the sidelined small investor back into the markets for another haircut. Hedges funds find it much less beneficial to have to deal with each other. And if you look at the last year, they have been blowing each others brains out at regular intervals.
So the operative question is not whether the market will trend up or down but whether the market as a result of the dismal jobs report has reduced real risk or just masked it.
My opinion is that the far more dangerous now than it has been in previous months for the following reasons:
1) The hedge fund press has suddenly reach a consensus that the markets have bottomed and markets are now safe. I don't like one sided arguments that don't present the correct facts. For example the GDP was just downgraded again to 1.6% going forward for all of 2011. That is horrific considering the colossal cost and effort to push the recovery. There are no more big moves to be made.
2) Political policy under Obama has been reckless and counter productive. His absurd tax on the wealthy and on business have already clearly demonstrated a contraction. Many firms are moving to Asia. The entire semiconductor business is now consolidating in Asia and it will never be back. The assumption by Obama is that this private debt that has been transferred into public debt is the responsibility of the taxpayer. Nothing could be further from the truth. But by running up deficits, more than twice as large as Bush in one year, Obama has disrupted the IRS collection potential to the extent that most of the collection will go to pay interest to the private Federal Reserve corporation for renting money and loaning money at zero interest to a handful of large banks. It is a first class fleecing of the taxpayer. There is nothing positive about becoming the largest debtor nation and totally dependent on the treasury bond sales.
3) Flash Crash. I mention it again because this is the harbinger of things to come. Just as the first attack on the twin towers was totally ignored by every government body that claimed to protect citizens. When 9/11 came round, the entire gov was caught flat footed, 3000 citizens were murdered, and the entire military complex for which we taxpayers had paid trillions could not launch a single armed aircraft or apply a single useful strategy. Totally useless. Now we have Flash Crash with the same useless moronic first response.... to ignore it an explain it away with no facts. These gov people are idiots and therefore it is incumbent on individual investors to protect themselves.
4) Our debt makes it virtually impossible to restore prosperity. In fact, the general appraisal of the future is that the US standard of living will drop significantly. This means lower wages, lower purchasing power, less opportunity. Government regulation has made starting a business nearly impossible and with Obamacare, business has every incentive not to hire more employees going forward.
5) FDIC has reported that the USA has roughly 840 banks at risk for closure.
6) Government unemployment is now rising. Private sector unemployment is now rising, GDP is falling.
So in conclusion, the direction of the market is pretty irrelevant at this point. The direction of the economy is down. Unemployment is up, mortgage foreclosures is up, the bond market is in a bubble. So if you think that playing feel portends a big upside then good luck. But most larger investors think this is a lot of risk with minimal reward.
What kind of events would tear the floor out of the market?
1) hedge fund reversals.
2) Flash Crash
3) Black Swan
4) Any bond failure for any sovereign
5) The default of any state [California is likely]
6) Any rise in the bond yield that would cause debt service to wipe out tax revenue collection.
7) a decision by China tighten credit
8) any middle eastern political disruption
9) a terrorist attack on US soil
10) a Hindenburg correlation
11) Flash liquidity crisis
12) a negative growth GDP We are presently at 1.6 [A 66% drop] And Trillions has been borrowed and spent to shore this up. There has never been a recession that two years later was not in the zone of large positive growth exceeding 6% GDP. Here we are at 1.6% and that will likely be revised downward.
Again when you have this kind of potential instability and the hedge fund press, specifically Bloomberg suddenly in complete consensus of a rising market; proceed with great caution. This is not the case of "Trend is your Friend" because the trend is down. The Fed talks big about what it can do but they have very few weapons and mostly just pea shooters. The fed window is already set at ZERO % interest. It can't go any lower.
Edited by sunyda 9/7/2010 12:23
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Interesting View of the Market in General
