Wait It Out…

I’ve been having a text-based conversation with a friend after my advice to go to cash last week. I wanted to share it with my Crazy 8 readers (good name for you, right? congrats on your new handle!).

Now, I apologize in advance for the form it’s in because it might be hard to follow, but I’m on public transit and thought it might be more interesting as the series of texts in time that it really is.

Ok. Press on if you dare. You’ve been warned!

🙂

Received Saturday. From my amigo…

“Stocks Endangered
This guy thinks like you do. The only thing is that he doesn’t really explain why it matters as well as you did.
Stocks Endangered By Fresh Putin Aggression – Sell SPDR S&P 500 http://seekingalpha.com/article/2114433?source=ansh $SPY, $DIA, $FB, $GLD, $PLUG, $QQQ, $TSLA, $TVIX, $UVXY, $VXX.”

My reply…”Yup. We agree!”

Monday, he asked…”What do you think of Yellen’s latest statement that the Fed needs to support the market for some time?”

My answer…”I think she’s trying to undo the damage she did at her press conference about 10 days ago, that made me and that other guy to say it’s time to sell.”

His question…”Sooooo? Jump back in?”

My advice…”Wait to see how the yield curve behaves for a couple days at least. Korea’s heating up and Crimea is not over.

You can if you want, of course. It’s your money. 🙂 I was advising profit-taking, not withdrawing forever.

In my estimation, things were too risky to stay in the top of the 52-week high. That hasn’t changed, and Yellen knows it.”

(…)

“If you’re in a good financial position on cash, take the wife out to dinner and congratulate yourself on doing a good job without losing anything, you know what they say… “Pigs get fat, hogs get slaughtered.””

Then I followed up with a summary….

“I’m picking up the kids, so this might be garbled. Remember what we were talking about? We don’t have the ability to engage their navies in two places, let alone three. The Koreans and the Russians and Chinese have been actively colluding to make things difficult. Think of it as three-dimensional chess.

From an investment perspective, risk is high and you could be chasing the Dragon. The yield curve wobble was a big solid tip off. The fact matter is that an inexperienced American president is playing against 3 very experienced autocrats.

We’re off-balance and surrounded by nasty little knife fighters. The president is saying bravadoish things while the Chinese are silent.

They’re the real power on that side.

Unfortunately, we’re going to have to wait and see what happens. We don’t have the initiative, nor do we know how to regain it. They’ll let us know when they see an opportunity. Could be something really weird, like Ebola taking off.

Probably it will be one of our allies in hot water when we prove that NATO is not really worth the paper it’s written on.”

Fast forward to Tuesday, when I texted him confirmation…”Treasury Two-Year Notes Rise On Yellen Comments – Investors.com : http://news.investors.com/investing-bonds/033114-695314-treasury-two-year-notes-rise-on-yellen-comments.htm

Could be that there’s nothing to worry about. Russia is slowly withdrawing from Ukraine and the North Koreans are shooting the water. Give it another day or two and then make your decision.”

(Or, I said, it’s a feint by Putin.
http://www.bbc.co.uk/news/world-europe-26830336)

Here’s my thinking yesterday evening…”Roubini is always interesting.
http://www.project-syndicate.org/commentary/nouriel-roubini-warns-that-even-as-many-threats-to-the-world-economy-have-receded–new-ones-have-quickly-emerged”

And finally – this morning…”Good simple explanation. I agree.

http://www.cnbc.com/id/101547404”

Now, my friend’s very reasonable comment is this…”I also agree with the last two articles you sent me. But it still seems that any one of the things mentioned may come into play…. Or they may not.”

And I close today’s notes with my reply,

“Yep. That’s why it’s investing. On the other side of every trade is a guy who got exactly the opposite. For every winner, there’s at least one loser.

The trick is not to be right all the time, but to be right enough of the time. It’s never how much you make, it’s always how much you keep.

Market’s just waiting for the next piece of news, good or bad. It’s 100% reactive right now. In any case, the fundamentals of commerce don’t support rapid growth outside of QE.

You’ll notice that the tech market is behaving speculatively. A couple of sectors are behaving rationally, but the market as a whole is just inertia-driven this week and maybe next.

If our adversaries cared to, they could make a few simple announcements or movements that would cause us great economic harm. They don’t really have any good reason to do so, but that’s not really how adversaries work.

That means there is upside potential, but it does not outweigh downside risk. Hence, wait it out.”

Alrighty, you Crazy 8s, I hope that was worth your time. Thanks again and have a good day!

ACC