Quote from Mvic:
Your right Pabst, though recently they seem to have stopped raising rates and have become more moderate in their language in terms of things they see as risks. I guess what I mean is that while the Fed has rasied they keep saying that everything is fine (pretty much sums up Bernanke's recent performance on the hill), risks are small and they are on top of it (which means that their break in raising rates means is a loud statement in and of itself). Just saw that one of them came out and said that while sub prime was a bit of a disaster better grade mortages are fine. As a retail trader with retail access to data am I really going to say that while I see significant systemic risk all over the place the Fed, with its birds eye view of the economy and with all their Econ PhD's, are wrong when they say that these risk are benign? Do they have better data than I do? Yes. Am I smarter than them and better at interpreting sid data? No. Am I a conspiracy nut that thinks they are trying to pull one over on me? No. So go with the flow.
Add to the above that Paulson seems very comfortable with risks in the system and the level of liquidity. What will BOJ do? Will they even manage a puny increase in the face of strong domestic economic data? Probably not as they have te excuse that the average Japanese worker is not seeing the gains in the economy in their wages yet.
I look at my trades the last two months and the majority of the longs have made money and the majority of the shorts with a couple of notable exceptions have lost money.
As I have written before GS is a good indication of market sentiment and it made a new intra day high today.
The thing to remember is that liquidity wins over valuation every time and I just do not see what is going to pierce the liquidity bubble. The plunge in pil prices and other commodities didn't do it. the sub prime blow up didn't do it. The short lived corrections in some of the EM's didn't do it. China slowing didn't do it. Corporate earnings slowing and tech orders dropping and inventories builing didn't do it. I suspect that a strengthening Yen might have an effect but that hasn't happend yet either and the Yen strengthen a bit the last week and the Dow hit a new high so until something starts to matter the market will continue to suck in more and more money and positions will be pyramided.
The risks are there but unless there is a trigger that makes them matter they don't. Its like all these guys selling premium and having a ball, as long as the party is in swing life is good and you may as well make the most of it, its a party that can go on a long time with increasing mania before it exhausts itself. Better to be in with the revelers than out in the cold. The key is to try not to get so drunk at the party that you miss the signs that it is coming to an end and that you always keep an eye out for where the exits are.
