- Indices holding onto gains and adding a little bit more to the tally. The real risk for fund managers now is not being in with enough size. All the other themes persist from Treasuries to commodities to currencies, and back to the beaten down consumer.
- OCN / HTS / XHB / and possibly FAF are my candidates for a housing recovery. John Paulson has launched a fund to bet on a recovery in real estate, and since he took it from the highs to the lows. I'm expecting him to do the same from the lows to the highs again. We'll see about it. Out of all of these OCN should outperform as they help restructure all those delinquent mortgages. And they did say last quarter that Q3 would be a blow out.
- Those that are calling this a bear market rally in equities and a reflation trade for commodities I think have it backwards. I think the move in commodities could be the bear market bounce and equities could further benefit from that as their input costs stay low and margins stabilize. Commodities are starting to get a dot com feel to them in this trader's eyes. Peak oil theories and Malthusian theories permeate through the investment mosaic in order to create a feel of scarcity in the minds of large and small investors alike. You know who's got the real answers about such things? That's right, Mr. Market does. And according to his extensive track record he tells me that equities beat commodities hands down over the course of time. A Paul Tudor Jones interview crystallized this for me the other day...although he's still a believer of Peak Oil.
"Is the price of oil high for fundamental reasons, or are hedge fund managers and Wall Street driving it up?
It’s a very bullish supply-and-demand situation, and the peak oil theory is probably correct. But the run-up in prices is now bringing in an enormous amount of speculative, nontraditional capital such as pension funds and university endowments — principally through index products. Commodities have been the worst-performing asset class behind stocks, bonds and real estate for the past 200 years, but Wall Street doesn’t highlight that long history when selling commodity index instruments today. Instead, it shows a chart of the bull market of the past 12 years to rationalize why some pensioner should be long cattle futures in the derivatives markets as part of a basket. I am sure they were using similar logic about tulips three centuries ago. Oil is a huge mania, and it’s going to end badly. We’ve seen it play out hundreds of times over the centuries, and this is no different. It’s just the nature of a rip-roaring bull market. Fundamentals might be good for the first third or first 50 or 60 percent of a move, but the last third of a great bull market is typically a blow-off, whereas the mania runs wild and prices go parabolic. "
- The rest of that interview can be viewed here : http://www.iimagazine.com/Article.aspx?ArticleID=1964189 And let me tell you it was a game changer for me. Especially the part about being hampered by the need to understand and rationalize a move. Let the moving averages and price action be your explanation. The fundamentals always come out in the charts. So instead of trying to rationalize why we should make new lows and futilely try to pick a top. Let a pullback into a major moving average or retracement level be your launching point to get long and capture some of this up move. And let those same averages serve you as a stop loss if we do roll over again and resume to the abyss. Keep it simple.
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