Vikram Saxena

Weekly Preview: How Stressed Will the Markets Be?

prudentinvestor: If you have been following my posts, you would know that my portfolio is primarily in cash, with some index shorts and some bond longs. It is positioned in a risk averse manner pending the resolution of the current uncertainty. I do trade in and out of the markets; my long term bias is flat to negative.

However your post actually highlights the angst being felt by the investors who missed out this rally. You might be strong in your conviction, but every day which goes by without a correction is weakening the conviction of many. This is especially true of money managers who are paid to invest and have been caught with too much cash in their portfolio.

To see an example, the ES futures continue to trade higher in spite of the leaked reports that BAC, C, WFC, PNC etc. may need tens of billions in additional capital. A few weeks ago, news like this would have meant the futures trading down a few percentage.

There is a change in risk appetite which needs to be respected. Whether and how long the appetite for risk will last is another question. We are no longer in a market where you can buy and hold, or short and hold; it is a trading market where investors have to move in and out of positions, without leaning too strongly towards either side of the market (bullish or bearish).

On May 04 07:42 AM prudentinvestor wrote:

> "There is a lot of money sitting on the side-lines, trying to get
> in to the market. This money sat on the sidelines during the period
> of extreme pessimism ..."
>
> Interesting that those who have gone all-in, and thus have no money
> left on the sidelines, like to speak for those who still have money
> on the sidelines!
>
> I suspect that those who kept money on the sidelines, myself included,
> have done so for a reason, and perhaps their reason is their inability
> to see sound underlying economic fundamentals. The government has
> stabilized the system, but their notion of repairing it is to restore
> speculative lending, and to encourage people to spend by borrowing,
> without having jobs and earning capacity to support their borrowing
> and spending. This model is exactly what caused the current crisis,
> and It should be clear that restoring a failed status quo ante cannot
> lead to a sustainable recovery.
>
> Thus, I'd suggest to the pundits to put their own money where their
> mouth is, and to avoid the arrogant assumption that others who have
> kept money on the sidelines are just waiting to be told when and
> how to commit it to the market.

Friday Outlook: Watching Paint Dry

I think instead of window dressing, we are seeing window breaking (as termed by Art Cashin on CNBC). Hedge funds are massively short the market and want their shorts to go back further before the quarter end. The rumors about LEH/ML seem to strengthen the thesis, that there are some significant money trying to get the some high profile under performing stocks to go down further.

So the securities under pressure in the second half of this week might see more pressure on Monday and then rally into the rest of the week as the hedgies rush to reduce their short exposure.

After the big up day earlier this week, the market listlessly drifted down with very little conviction in any direction. This is really an odd behavior and suggests that the traditional window-dressing is being supplemented by sometime more, and newer.