TAURUS MINOR

11/21/08

I don’t like to use the Pontificator to report on my market posture, at least not directly; it was not designed as a purely financial site. I try to limit the Pontificator to musings on economic, financial, societal, and political developments. I’ve refrained from making this a typical financial site for a number of reasons, the foremost being that I am a much better writer and thinker than I am a trader; even though my (small; our larger investment accounts are doing well only on a relative basis because they have had small stock positions and large TIP positions; the last few months have not been kind to these accounts, given what has happened to TIPs, but, on a relative basis, they have done very well. Given my discipline, my posture in the larger investment accounts won’t change until their scheduled annual rebalancing dates.) trading account is up 201% over the last year, I’m not so sure that isn’t a case of a broken clock's finally being right.

That having been said, regular readers have a pretty good idea of what my investment and trading posture has been for the last few years: unapologetically and unmistakably bearish. I have been trading in and out of puts on the QQQQs and on various individual stocks and have been consistently long the ultrashorts on the QQQQs (QID) and on the Russell 2000 (TWM).

Over the last few days, however, I have been changing my outlook. Do I think the economy is improving markedly? No. But, like anyone who knows anything about investing, I realize the stock markets turn before, usually well before, the economy. And, as I said in my 11/11/08 post “Happy (?) Days Aren’t Here Again”:

“As far as the markets go, with the S&P down some 42% from its high, it is foolish, if not mathematically impossible, to be as bearish on the market as I was when the market was at its October, 2007 peak and as I have been all the way down. However, it is nearly as hard to be even the slightest bit bullish. While, as with the economy, we might see an ephemeral pop now and then, I see more trouble on the way and more, albeit of necessity fewer, opportunities for bears, even permabears, to make some money on the short side.”

Since then, the market has traded down to the point at which, at yesterday’s close, the S&P was down 52% from its 10/9/07 closing peak. At that point, common sense says that there is likely more room on the upside than the downside. Further, the almost uniform bearishness among the experts (for whom, the loyal readers know, I have such brimming admiration!) also has made me reevaluate my bearishness.

I wish I could say that there is plenty of anecdotal evidence (which readers know I like) that the economy is turning around, but there isn’t. I notice the restaurants I frequent (primarily low priced) are slightly busier than they used to be and there are fewer “For Sale” signs around the suburban paradise we inhabit and its environs. But that is pretty thin gruel. Again, however, markets turn before the economy.

So, I am out of all my QQQQ puts, but my being out is the result of my trading discipline which demands a sale at a certain level, not a firm determination that things are turning around. The last position put I had (the March 29s, QAVOC) touched my limit price, taking me out before promptly trading down in this afternoon’s rally. I have been peeling out of my QIDs and TWMs for the last month, and am down to less than half of my original position. I originally was replacing the QIDs with TIPs (at one point yesterday, the 10 year TIP was trading within two basis points of the conventional 10 year Treasury; you have to be convinced that either deflation will prevail for years or that the monetary authorities will act responsibly in order to buy the conventional 10 year under those circumstances. I scoff at either notion.), but today began to replace them with the Direxion Russell 1000 3x Bull ETF (BGU) and began replacing my TWMs with the Direxion Russell 2000 3x Bull ETF (TNA). I am doing this gradually, as I do everything in investing and trading, the latter on relative basis.

As I said at the outset, I’m not the greatest trader or investor in the world and there probably is a good chance that, now that I have begun my move from bearishness to bullishness the market will soon trade down to zero. SO THIS PIECE IS NOT MEANT IN THE LEAST TO BE CONSTRUED AS INVESTMENT OR TADING ADVICE. But I thought I would report on this alteration of my thinking for a few reasons. First, so I can brag about if things do work out and, second, because my being even the slightest bit bullish happens about as often as the Bears win the Super Bowl.