The market does not have a brain
Posted: November 24th, 2008 | Author: Wayne Weddington | Filed under: Market update, Opinion | Tags: Trading, Volatility |
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Forget about fundamentals. This market reminds me of the joke about two guys running from a bear. One asks the other, “Which way are you gonna run?” “Why, are you going to run with me?” the other guy asks. “No,” says the first guy, “I don’t want to run right over you!”
It is every man for himself right now. And people are running every which way.
Yes, we keep hearing that the current market situation is unprecedented, that it is historic. Well it is. Just look at all of the banks which were household names just a few months ago that either do not exist any longer or look really different (call that smaller), or are part owned by you and me, the taxpayers. These failures are huge.
And hedge funds — though intended to protect the investor from unwelcome swings and losses in bad times — have been decimated. Their failures do not make the news because they are not public companies. But the blood is running a river from Connecticut to New York.
As I walk down the streets of New York, no doubt grumbling aloud to myself, I have become the Scrooge of yore, nearly yelling at people in the streets who are smiling inexplicably. They are gleefully unaware of the impending doom. I feel I need to bring them down a notch.
I have not been spared the rout but my fortune is a tale of two cities. My long/short equity strategy, steeped in fundamental analysis, has suffered a fate similar to the market. It has outperformed the market, mind you, but that is scant consolation when the return has a negative sign in front of it. The sole shiny spot has been my global macro strategy. But the swings can drive a man to drink. And I comply.
Investors today break down into three categories. The long-termers will still cry upon account review but they will have comfort in one assumption: that the U.S. will not come to an end. We will survive. In 1973-4 the market suffered significant declines similar in scope to today’s. It was a tough decade with subsequent hyperinflation and dismal equity performances, but we made it through to the eighties. Yes, we can!
There are the scaredy cats. They have picked up and run for the hills. They tend to be seasoned but unwitting adherents to the philosophy of buy high, sell low.
Then there are the adventurers. They are those who are trading this mess. They alone are positioned to benefit from all of this volatility. But it is a rough road. Keep your Prilosec handy.
- Wayne Weddington