The Credit Crisis Financial Stocks Short Journal

A suppose another argument is
-"Government stimulus will keep coming, unemployment benefits, tax cuts, government spending,etc. This will boost GDP and spending". The problem here is that state and local spending is offsetting part of that. Some of the federal spending are wasteful, so I accept that GDP will be higher than otherwise, but not that the US can have a government induced V shaped recovery unless they can reeinitiate the US consumer into spending mode. I believe the Fed can do that(by suggesting they will hyperinflate) but its unlikely they will do that unless the S&P goes to 500 and the core CPI is massively negative. In that case I will cash in bear bets anyway
 
Fed just extended the TALF
"To promote the flow of credit to businesses and households and to facilitate the financing of commercial properties, the Federal Reserve and Treasury approved extending TALF loans against newly issued ABS and legacy CMBS through March 31, 2010. Because new CMBS deals can take a significant amount of time to arrange, the Federal Reserve and Treasury approved TALF lending against newly issued CMBS through June 30, 2010. The Board will continue to monitor financial conditions and will consider in the future whether unusual and exigent circumstances warrant a further extension of the TALF to help promote financial stability and economic growth. The Federal Reserve and Treasury had previously authorized TALF loans through December 31, 2009."

Fed futures didnt do much, this tells me the market doesnt seem to be aware that there should be a high correlation between unusual and exigent circuntances authority usage and fed policy. Or maybe the market antecipated, in any event, this makes rate hikes Aug 2010 the earliest date for a move(No meeting in Jul). That if my theory is correct
 
I totally can see this market turning around and posting new highs, however after doing my homework here and coming up with all the arguments, if this market doesnt put a significant correction(20% or more, 33% for financials in a beta ajudsted basis if my math is right) within the next 4-6 months and keeps extending this unprecedented, large and quickiest rally ever I would consider that an unlucky outcome. Like getting a 21 while the dealer has blackjack(If you dont know the rules, this means you lose even though the count is the same)
 
Today I asked Caroline Baum from bloomberg if she agreed with my theory that the fed cant raise rates while still claiming 'unusual and exigent circunstances'. She got back at me now saying she agrees and will write a column tomorrow about it. I look forward to it, she is probably the best female market commentator out there. If she goes out with this maybe its possible fed futures go up?She's got quite exposure(Victor Niederhoffer is a huge fan since 90's) and the market seems to be missing this simple semi-arbitrage
 
I find it amusing to see some folks now claiming that the fundamentals are not important and those who are bearish for XYZ are foolish, those people are usually long the market. Its like playing hold'em winning a hand with 93 offsuit and saying 'see you idiots. You wait for a good hand you are a fool'
The bulls have been lucky, yes markets can rise with bad fundamentals but guess what on average they dont(and when they do it doesnt last). Hand picking one example out of dozens in order to show how fundamentals are 'foolish', is the same as handpicking choppy markets as evidence that trendfollowing is 'stupid'
 
I wont ever forget John Hussman remarkable discipline and persistence while running his mutual fund. I dont have his data here but IIRC since from 2004 to the 2007 top he lagged the market A LOT. The reason was he kept 'hedging' his portfolio through puts and other techniques meanwhile the avg idiot kept saying stuff like 'global liquidity' 'low interest rates' 'earnings growth is strong' 'global growth' 'weak dollar is good'. Yet he knew PE multiples were totally overvalued and ON AVERAGE the market was not expected to post significant returns

The guy got killed for years but kept his discipline while having to hear 'equities always rise', yet when the crisis hit his fund just destroyed the S&P500. Since inception his fund made 8.62% a year, against the S&P -3.87%. His investors doubled their money since 2000 while S&P morons are down. Yes the fundamentals do matter, even if you have to fight the market for a while as a long you dont fight a bubble(which is an analytical mistake) you will come back at some point
 
The 'global liquidity is abundant' now is the 'green shoots, V shaped recovery is coming', they will have the same fate.

However is there a better way of fundamental/macro trading in order to avoid fights with the market when you can?Thats what I've been thinking about lately, I have been increasing the amount of technical analysis I use and this will probably improve in this area

Good R/R macro fundamentals + Technical Analysis(based on price action) + Avoiding Countertrends is probably the holy grail for swing/position trading in highly liquid(and scalable) markets.
This is a important skill even if you are a daytrader cleaning $1m a year. After all you have to 'invest' the earnings or at some point daytrading becomes non-scalable, or you want to run a hedge fund, etc
So my 2009 long put losses will serve as education for the future, however I'm not quite sure better TA usage could lead me to avoid most of them
 
Given that I've been adding TA based on price action it might have been a mistake to start my put position on monday. XLF is still above the 20day SMA. However the price did broke the $13.75 support level. It did that through a gap. This is supposed to be a 'breakaway' gap which indicates a new trend, although the volume was weak. The same pattern occured on the SPY monday. The volume was above average. Although the rally has been so monstruous I probably should have taken the insurance of waiting XLF to break the 20d/30d or the SPY break the 50d.

As far as stops are concerned I have none, I'm using puts and stops are probably counter-productive given the level of bid ask spreads. If wrong I will just lose the premium. On fed futures I will just monitor the position and cut back/add as the price moves
 
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