Don't Buy the Jackson Hole Hype

 | Aug 22, 2011 | 6:08 AM EDT  | Comments
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We love to fool ourselves in this market, don't we? Today people are buying futures as they "await" Ben Bernanke and statements coming out of Jackson Hole. They are hoping for good news that will ignite "growth" and promote stability. No one wants to be short for the growth "miracle" that Ben Bernanke might have up his sleeve. The media will make sure that you think one will be coming, too. Or why bother covering it?

That's just like last week, when people stopped selling or shorting futures and started buying because of the potential of good news coming from the pending Merkel-Sarkozy meeting. Traders didn't want to be short the market for the good news from "Markozy" that would ignite "growth" and promote stability. No one wanted to be betting against a potential for the "credit miracle" and the "sovereign solution."

There was no miracle.

There was no solution and we quickly fell apart. It was more hideous action. Bear action. Mauling.

The lead-up, the peaceful interregnum was a terrific shorting opportunity. You had to take that rally and use it to sell or lighten up if you wanted to lose less than the other guy.

I think that the post-Jackson Hole move will be just like the post-Merkel-Sarkozy period. That's because Bernanke and company can't do anything they haven't already tried to ignite growth -- and it all failed. It is more of the same. Our problems are too deep right now to be solved by Fed chieftains.

Just so we are clear, these rallies into hopeful meetings are all classic bear-market rallies. They are textbook. We always see the short-and-cover-ahead-of-events action during times of hideous bear action.

The "textbook" I use is the story of the great 1990 bear market post-Iraq's invasion of Kuwait 21 years ago. The setting: Inflation was headed up, business was headed down, growth was slowing or stopping and the market was a free-fire zone, short every day except when there was an upcoming meeting of foreign policymakers. Then people bought stocks, bought futures and cut down shorts every time -- just like the Merkel-Sarkozy meeting last week and the Jackson Hole meeting this week.

But at the very moment when the meeting was about to start, at the apex of hype, you had to sell what you bought and get short again, and you did great. All meetings ultimately failed and the market lost about 20% of its value, with the techs and banks losing much more.

The market didn't get its footing until the war was won.

I know what people reading this might be saying: "Wait, Jim are you saying we are in a bear market? Wasn't that a horrible bear market?"

Well, isn't it?

The only reason we don't feel it even more is that when we get covering events, they are so vicious that they quickly move us out of bear market territory -- remember the beginning of last week? -- before throwing us right back into one. The high-frequency traders exacerbate the moves terribly and just frighten more people away from the market when it unfolds.

If we drop 20% from the top, which seems pretty easy to see from here, then fine, sure, we are into a classic definition of a bear market. But given that high-frequency trading can take a 2% move either way and turn it into a 6% move without much of a problem, the whole nomenclature seems pretty worthless -- it's more of an attempt to pin people down to touchstones rather than providing illumination.

Here's what you do need to know. Jackson Hole is not going to stoke growth. It is not going to do anything, actually, other than make more of the fact that we have to find yield if we are in need of fixed income and that means accidental high-yielders, MLPs, REITs and the like.

I think tech and banks will remain in terrible bear market mode right through this. You have to hope you get a Bernanke bump in those groups to lighten up and then get short.

Just call it another bogus rally to reposition. That's all I view it. Or another rally where you cover today if you can't take pain, but otherwise just stay short through Jackson Hole as it is just another meeting with a Saddam affiliate that doesn't end the war or spur the growth. Just like Merkel-Sarkozy.

We are working our way through a difficult period of vicious of volatility, a byproduct of a severe slowdown, coupled with credit problems worldwide and a lack of players, both of the leadership and portfolio variety. It is a nasty, bad period. There is lots of money being lost. I could see why anyone would give up. And if I thought we were going back to where we did in March 2009, I would give up, too.

It just isn't as bad, so I continue to look for new stocks that yield 4% that could have good moves back when we work our way through this -- as we will -- and get to some level where the end of the world isn't as nigh as we think it is now.

Plus, there is some good news. If Brent goes down because of Libya, then our pump prices will go down because somehow the gas stations were able to keep pricing of gas pegged to Brent and not West Texas.

Maybe that ends and we get some relief at the pump. Every little bit helps.

But until we see some credible plan that deals with the sovereign debt problems of European countries and the bad balance sheets of European banks, just presume that every meeting, every talk, every glimmer of hope, is misplaced and a terrific opportunity to lighten up in tech, financials, companies that need government help to make quarters, and stocks with no yield protection. Then when the selloff ensues, go for higher yielders and gold.

That's how you have been able to ride out this period so far, and until we either get to a bottom or a resolution -- or both -- it's the only strategy worth using.

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