Like moths to the flame: Playing with Mr. Market

When it rains it pours:

Nortel declares bankruptcy, container shipping rates fall to zero, Jamie Dimon states that 2009 will be "bleak," the large banks are still not on their feet, the Euro and the Euro zone deteriorating, consumer spending is dropping, job cut announcements are flying and with them unemployment is rising sharply, and so on.

Finally it’s been enough to break the momentum of the recent rally which has been based on nothing as far as we can tell.  (Okay maybe the TED spread has improved but that doesn’t seem like enough.)  Our best guess is that people see the market as a "discounting the near term weakness and getting ready for a recover in 2H09." 

We confine most of our investment activity to individual stock situations (PALM, NVDA, YHOO, DDUP to name a few) and emerging sectors like RealVR, Enterprise 2.0 and Cloud Computing.  Still we have research partners who do excellent work on global issues and the economy that tempt us into trades we have no business being in.  (Thanks to Gavekal we shorted oil on July 3, 2008, unfortunately we covered in August.)

Despite the recent market momentum the indications coming from these research providers have been that the declines in the global economy have been steep and not yet showing signs of bottoming. We are seeing more of this in the headlines now which is another example of how good research keeps us ahead of the curve.

Even though we continue to own individual stocks we’re still in a very risky market.   Lots of attention and hope will be afforded to the new US administration but it’s not likely to result in a quick fix.  Most are prepared to hear a giant program that focuses on energy independence, education and improved infrastructure including broadband.  Some will be trading these sectors into the "news" that is likely to come later this month. 

As John Chambers says the great opportunities in business to expand share and move forward are during transitions.  That much is certainly true but this market is one for the fleet of foot and those who know how to manage structural and market risk around their best fundamental investment opportunities. 

One day everyone is jumping in "afraid to miss the big rally" and the next it’s "sell at whatever price you can get to raise liquidity to ride out the storm."

Discretion is the better part of valor. 

Tagged as: Markets, Strategy