Zachary Scheidt

At the Bull-Bear Crossroads

The volatility is certainly picking up (both on positive and negative days). That has me trading smaller and managing risk more carefully. But it also seems to point to "churning" where investors are skittish and could very easily be convinced to throw in the towel and send markets lower.

I'm particularly concerned when looking at charts of major indices - noting that the small cap and higher risk indices have very decidedly broken their uptrends, while the Dow and to some extent the S&P is still hanging on. It seems the appetite for risk is diminishing which will initially hit the small cap growth sector, but in time should erode into the blue chip universe.

I'm picking up short exposure and yes it has me nervous. I'm one who got my hand slapped late this summer as well, but the risks are in full force. Beginning to build short exposure slowly and will pyramid as confirmation and profits accumulate.

zachstocks.com

Sentiment Overview: Surprising Increase in Optimism

Optimism re-entering the market should provide some fuel for bears (myself included) as eventually the frustration will likely cause these weak hands to fold.

However, we need to watch retail figures carefully. If a positive market and investor optimism leads to consumer spending for a quarter or two, it could stall the eventual downturn in the market. I don't think the consumer has much dry powder even if he IS optimistic as lines of credit are being pulled and unemployment continues to rise. But we should be aware of this potential and initiate short positions carefully with risk control.

zachstocks.com

Increased Deficit Spending: We Can't Afford It

AM chap - Good point. I'm not a big fan of cash and treasuries. Instead I think cutting back on risk means owning "stuff" or commodities. You can own physical gold and silver, you can own real estate, you can buy financial instruments that represent ownership in these areas. But the bottom line is that I want to be long hard assets and feel like that is a less risky play. Sure some cash is worth holding on to but as you say - the value of cash assets will likely decline over the next several years.

Jamesa - I don't think the consumer is anywhere close to having paid down enough debt to "not need bank financing." They may not GET bank financing but in order to spend, consumers either need to take much more time to pay down debt, or they will need to fund it with MORE debt.

The Geoffster - I'm not sure I get "trillion" and I'm a numbers guy! Do you think our elected leaders can get THEIR heads around "trillion"?

tunaman4u2 - see note to AM chap - owning hard assets appears the safest play to me

WheelsComin... - don't forget... WE are the traders too. We have to make money during this environment which sometimes means stepping back and waiting for the herd to exhaust itself and then picking up the spoils later.

inthemoney: - good point, well spoken

JJJ: - I'm not quite sure, but that's definitely worth looking at deeper. Your point however, is a good rebuttal to WAKEUP's two posts :-) Even though everything is bigger (an ode to inflation), it's bigger to a greater magnitude and alarming when considered as a percentage of GDP

TeresaE - You're right. It seems this administration has a grudge against anyone turning a profit. But in punishing those evil capitalists, we don't realize that we are punishing the entire country. Because it is successful business who actually create jobs. What will happen when we put all the strong companies out of business and rely on the government to supply jobs and stimulus? I sure don't want to rely on their programs to feed my family.

RatWatcher - Thanks for the link...

All - thanks for the great comments! Come visit zachstocks.com when you can. Lets keep the dialog going!

SuperNanke to the Rescue!

Great comments guys!

The market will follow fundamental information over the long run, but today's prices appear to be largely a function of investor confidence which is being juiced by positive statements out of the various governing bodies of our economic process. It is very difficult to know WHEN the market will swing back to a fundamental pricing measure (and likely take investor confidence along with it), but I think it's very clear that the risk is high in this environment. So as investors we've got to be careful not to drink the kool aid but also not get too committed to the short side until the confidence has run its course.

Keep the investment powder dry and the eyes wide open. We should see some much more attractive buying opportunities in the next several months. For today, buying on the hype could be disastrous.

zachstocks.com

GDP Report Offers Positive Headline, But Negative Details

Sr. EM - sometimes fewer words can yield greater wisdom. Yes I think you're right.

FB5000 your points are well taken - although not necessarily agreed with. I don't think the economic indicators are as clear as you make them out to be. I'm not the "gold gun and grub" guy in a bunker, but I do think it pays to understand that this is not an ordinary recession that works its way out in a few quarters. There are serious issues we need to grapple with and until we are willing to actually FIX problems and not try to re-inflate another bubble, we will continue to have unsustainable recoveries and then crashes.

You can bash Fox and I'll bash CNN and maybe the two of us can end up somewhere in the middle...

To use your line, that's all
zachstocks.com

GDP Report Offers Positive Headline, But Negative Details

Mad HFT - I like your analogy of taking money out of one pocket, putting it in the other, and calling it a profit. The statistics show significant weakness - as a whole - and in specific areas. While we may not be falling at the same rate as the first quarter, *falling* still means that the trend is lower.

Thiazole - I suppose there is a chance that Q3 shows growth, but it seems highly unlikely. Even if we DO see GDP tick slightly higher in Q3 it will only be as a result of higher government spending which in the long run will come back to bite us. That's not an increase to our true domestic product - it's an accounting gimmick - like many corporations have been punished for using.

Monthly reporting may be helpful to see what is going on in a bit more detail, but remember that the more often you take samples, the more "noise" or statistical irrelevant information you must sort through. I personally think it's better to use quarterly reporting but then to look at some of the monthly figures such as retail sales, unemployment levels, etc to see what is going on on a shorter-term basis.

ETF desk - very good point. How bad would consumer spending be without Uncle Sam shoving future taxpayer money into the retail pocket and then begging him to spend it?

Thanks for the good comments guys - keep em coming!
zachstocks.com

Loan Delinquencies Cast More Doubt on the Economic Recovery

excellent comments all around... The possibility of a deflationary death spiral cannot be overlooked. But with the powers that be intent upon printing our way out of this mess, I would anticipate the end game being a debasement of currency in return for a "paper" bull market. Unfortuantely, a paper bull market really does very little to help consumers or the economy because that paper becomes worth less. Employment will still be weak, and those who have jobs will find their earnings taxed to the breaking point.

These are serious issues. And we can't simply "hope" that things get better as we throw more money at the situation. For the next decade, investors will have to become increasingly creative to find REAL returns and to protect the purchasing power of their assets. But opportunities abound for those willing to consider approaches other than the "buy and hold" standard we have held to for so many years.

Thanks for the comments guys!
zachstocks.com

Hedging Strategies for the Next Move Down

The "know your portfolio" section is especially important. I have spoken with plenty of investors who thought they were quite hedged only to realize that the method of hedging didn't correspond to the exposure they were taking. In the end, there is nothing more frustrating than losing money on both the hedge and the original portfolio. It is important to protect investments against loss, but the methods are sometimes more difficult than they originally appear.

Great insights,
Zach
zachstocks.com

If This Is a Good Year for Citigroup, What Does a Bad One Look Like?

You make a good point. There certainly has been a lack of due diligence in this process for years (whether that is considered moral hazard or just hazard is up for grabs...)

It seems completely senseless to me to buy something that you don't understand, haven't read, won't research, and hope to pass off to someone else.

Reminds me of the time as a young trader that I owned a big position in an obscure index option. Little did I know, the option expired at the OPEN not at the CLOSE on expiration. Also, there was a convoluted process of determining exactly what the OPEN price was.

Needless to say, I took an unjustifiable loss and had trouble explaining it to the head trader. I learned early that if you don't know the details, you don't trade the vehicle. If only our banking and insurance colleagues could have learned such a lesson.

Thanks for the comment,
Zach
zachstocks.com

Is the VIX Signaling an Inflection Point in the Markets?

Thanks for the comments guys!

Of course the VIX is only a tool - and an imperfect one at that. But it does signal the amount of fear in the market. Such fear is cyclical and will at some point abate.

Regarding the economic difficulties, I am not arguing that "everything is ok." I am not even saying that this is THE bottom. Only that we are in the process of forming a low that should hold for a period of time.

The market should trade well ahead of the economy which means it will start heading higher well before the economic picture turns. However, we can't be certain when this turn will take place.

I, for one, however, am riding with a fairly high amount of long exposure.

Are We At a Key Inflection Point?

haha - yes if that's all that played into my analysis then I would have a big problem.

Is the Worst Behind Us?

HAHA - Dr. Phil here checking in...

Sorry if I sounded like I'm sitting on the fence. I do think having a large cash position is wise. Keeping dry powder is important in this volatility. I think the outlook is fairly dour right now but obviously opportunities will always be there. However, investors should pay closer attention to how much risk they are putting on the table.

Thanks for the comments guys - user 138049 and noFate, I'll try to provide a little more clarity in the future.