Time to Go Short?

[oddlots]

A good head-clearing piece from Charles Hugh Smith:

http://www.oftwominds.com/blogjan10/crash01-10.html

Does the following not ring true?

"The disconnect between the reality of a disintegrating economy propped up solely by unprecedented Federal borrowing, spending, subsidies, giveaways, swag, guarantees, secret intervention in the markets, Fed purchase of Treasury bonds, Fed purchases of toxic-trash mortgage-backed securities, etc. etc. and the market's euphoria about the "recovery" could not be sharper."

Despite the clearer head (really?), I don't trust this market to make sense on terms I understand.

Undecided.

Any thoughts?

[jpatter666]

Re: Time to Go Short?

A good head-clearing piece from Charles Hugh Smith:

http://www.oftwominds.com/blogjan10/crash01-10.html

Does the following not ring true?

"The disconnect between the reality of a disintegrating economy propped up solely by unprecedented Federal borrowing, spending, subsidies, giveaways, swag, guarantees, secret intervention in the markets, Fed purchase of Treasury bonds, Fed purchases of toxic-trash mortgage-backed securities, etc. etc. and the market's euphoria about the "recovery" could not be sharper."

Despite the clearer head (really?), I don't trust this market to make sense on terms I understand.

Undecided.

Any thoughts?

Too many people looking for a crash still IMO. I don't see one happening on its own but more likely in consequence of an "event". This was to some extent the rational behind EJ's earlier crash call.

Didn't happen last year, doesn't mean it won't happen still, but again -- *hard to tell*.

And as we saw with Dubai, TPTB will do everything possible to (literally) paper over the mess.

[Mashuri]

Re: Time to Go Short?

Jpatter is right. Too many bears are still providing capital for short squeezes (climbing the wall of worry). Once the bears are completely exhausted we should see a downturn.

[Master Shake]

Re: Time to Go Short?

What's the old axion?

The market can stay irrational longer than you can stay solvent.

[unlucky]

Re: Time to Go Short?

Can the market go up from here? It seems difficult. News of recovery gets everyone worried that the Fed will tighten. News of no recovery makes valuations look ridiculous. Perhaps if the Fed announced a whole new round of QE/money printing, out of the blue?

[Mashuri]

Re: Time to Go Short?

Can the market go up from here? It seems difficult. News of recovery gets everyone worried that the Fed will tighten. News of no recovery makes valuations look ridiculous. Perhaps if the Fed announced a whole new round of QE/money printing, out of the blue?

The irony is these bad news reports embolden the remaining bears who then go short, get squeezed and the market continues to climb.

[Jim Nickerson]

Re: Time to Go Short?

From David Rosenberg today.

The U.S. dollar carry trade is also likely to continue indefinitely as we see on our Bloomberg screens that NY Fed President Bill Dudley (who used to be a competitor when he was the Chief Economist at the other GS — one of the few investment houses whose economic department comes closest to sharing our macro and market view) told the PBS Nightly Business Report last night that the Fed is likely to keep rates where they are for anywhere from six months to two years out. The market odds of a Fed rate hike have been whittled all the way down to 34% as far as the June meeting is concerned — it won’t be long before that becomes zero in our opinion.

As long as interest rates stay low, it seems dangerous to short the market, especially one that continues to go up--I'm referencing US equities.

Shorting a climbing market is the same as "bottom fishing" a falling market. It seems prudent to me that one would better enter trades once a trend has some evidence of reversing. Currently I see no evidence that the up trend in US equities is reversing.

[stanley2008]

Re: Time to Go Short?

From David Rosenberg today.




As long as interest rates stay low, it seems dangerous to short the market, especially one that continues to go up--I'm referencing US equities.

Shorting a climbing market is the same as "bottom fishing" a falling market. It seems prudent to me that one would better enter trades once a trend has some evidence of reversing. Currently I see no evidence that the up trend in US equities is reversing.

+1

It's really tough to know on the short term.

[loweyecue]

Re: Time to Go Short?

Isn't buying a put on VTI or something like that much safer?

[jpatter666]

Re: Time to Go Short?

*The* joker in the deck is whether or not the Fed will end QE as it claims in March. The market is betting it will not.

More free money for all!

[strittmatter]

Re: Time to Go Short?

FWIW - regulators seem to be sounding the IRR alarm.

http://www.federalreserve.gov/boardd...010/SR1001.pdf - interagency advisory 1/6/10

http://www.federalreserve.gov/boardd...010/SR1001.pdf - reminder 1/11/10


WASHINGTON (Reuters) - U.S. regulators on Thursday urged banks to protect themselves against hikes in interest rates, which could threaten the easy earnings that have helped heal the banking system during the credit crunch.
http://www.reuters.com/article/idUSTRE6065MK20100107
EMERGENCY MEASURES

The Fed cuts its benchmark federal funds rate to near zero in a series of rate cuts ending in December 2008. Over the last two years, the Fed has created a host of other emergency lending facilities to help fight the worst recession in more than 70 years.

But as interest rates start to climb from historic lows, banks relying heavily on short-term funds could see their funding costs accelerate.

Longer-term assets may no longer be profitable to own, forcing banks to sell securities en masse and potentially weakening the financial sector again.

The advisory said banks should have effective tools to manage their interest rate risk, including monitoring systems, stress testing and internal controls.

A top Federal Reserve policymaker said earlier on Thursday that the Fed should tighten policy sooner rather than later to contain longer-term inflation pressures.

Federal Reserve Bank of Kansas City President Thomas Hoenig told a conference that keeping short-term interest rates near zero could actually hurt the recovery process in financial markets.

With a low federal funds rate and a small spread between the discount rate and the rate paid on excess reserves, banks are more inclined to transact with the Fed instead of with each other, Hoenig said.

Anything?

[rjwjr]

Re: Time to Go Short?

I, too, share these feelings about the disconnect between the market's historical valuation and its current apparent OVER-valuation. The only opinion that I have seen that has proven right so far (and helps to explain the current highwire act of this market) is Finster's opinion/explanation from a number of months ago in that the market will move inverse to the US dollar. The dollar continues to weaken so the market continues to defy gravity. It seems too easy, but it fits recent events.

[charliebrown]

Re: Time to Go Short?

If you use SHY, or VFISX as a proxy for the short term treasury market, treasury prices appear to be peaking. 200 day MA are now flat, and look like they are heading down. (Rates Up). This has not occured since 2007. That is as long as stockcharts.com will let me look into the past.

Also FXI Red Chips are not participating in this rally's last leg up. Price is down around 10% from Nov. peak. China is trying to withdrawl stimulous. Hmm. I would only hold liquid ETF's that you can stop out at this point.

I own FXI and have it stopped at 40.70. is this a correction and time to buy, or time to fly??

[oddlots]

Re: Time to Go Short?

Thanks for the replies. Working through them.

Noticed that Jesse hapened to address the issue of shorting today with a reminder of what the last bubble looked like in isolation and where we are now.

Conclusion: don't short this market.

http://jessescrossroadscafe.blogspot...s-central.html

Does anyone give Smith's discussion of the vix any credence. It is a "megaphone" formation after all.

[MulaMan]

Re: Time to Go Short?

What about start buying long term PUTs, 6 or so month out, late this summer if the market is still going up and not crashed yet?

Keep buying a few PUTs each month, build up a staircase of PUTs until the market crashes.