Wednesday, September 2, 2009

Should I Stay Or Should I Go?

Market went down for two days and failed to have snapback rally on the third. If I had more time for trading now, it would be perfect setup for Jim Altucher's 3x2 quant trade. Unfortunately, I can't sit at the trading screen.

Is it correction? Is it an opportunity? As usual, we'll see later. Some would claim they made a great call some would be silent. It's really hard to make a call here, because last month was a month of panic buying by big guys. Market now in their hands. If they think they bought enough, we are going to have a correction or sideways market. If they need to buy more, market is going up.

Honestly, I remember only one buying panic which was bigger: first half of March 2000.

Doug Kass predicts 10% pullback. Great! If so, I'm a big buyer. Even bigger if market drops another 5%. I'm all in on another 5%. We are in the market which mimics 1932, in compressed form. Which means: "buy, buy, buy". But discipline says: "wait for a pullback".

There are two big clouds on the horizon. First one is looming tax increases in US. Most of Bush tax cuts expire in 2010, which will be a huge hit for recovering (maybe) economy. I wasn't a big fan of those cuts, but raising taxes in time of crisis is bad. Actually, it's insane, but I'm afraid that current administration will go for it.

But federal taxes won't be up for a year. Another cloud might be much closer. We have a bubble in China. Many (most) refuse to recognize it. They ignore simple arithmetics: more than 20% drop in exports can't match 6% growth in export depended economy. No way, no how. The only question now how this bubble will end. If it deflates slowly, world economy is OK. We'll see significant drop in commodity prices, which really would most economies. Unfortunately, most bubbles in economy end up with the bang. And that's scary. Sharp drop in Chinese stock market would be bad by itself, but sharp drop in commodity prices might create a worldwide disaster, especially in commodity depended economies. I don't mind if Venezuela or Russia lack money for their ambitious political projects. Problems in Brazil, Argentina, Chile, South Africa might threaten their stability, which is much worse.

Anyway, I'm still bullish. 10% pullback? Gimme!

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