Back to Rationality

 | Dec 12, 2011 | 6:48 AM EST  | Comments
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If everyone was so happy with the accords on Friday, who is selling today? I believe there were two satisfied sets of customers last week, those who were so glad that there couldn't be a Lehman with all of these levels of support, and those who figured, "Now we'll see what the IMF will do to help the sovereigns."

The first set of buyers should still be happy. The second set buyers sees gold down today, sees the euro down and says, "OK, the IMF isn't going to do anything, and all that happened is that we saved the banks for now but the sovereigns are going to drown into their own debt."

In other words, those who fear the destruction of Europe by bank are still sanguine. Those who fear destruction by sovereign are panicking and selling.

Of course the third option -- profit-taking -- is never considered anymore because of the silly "risk-on / risk-off" thinking that pervades a handful of analysts but almost all journalists, meaning that today we don't like risk but we liked it Friday.

May I ask, where does that get you?

I think that after this run we get profit-taking, which you are seeing, and then we get back into hope mode: hope that the IMF can build a bridge to those countries that are cutting their budgets so we can hobble along for as long as it takes.

If you are back in the not-as-rosy-as-it-was-Friday-but-still-OK world (as opposed to the binary risk-on / risk-off silliness), a world I think makes more sense, what do you do? You sell the stocks of companies that aren't doing that well, and you hold the others. In other words, you act as if this is a stock market and you pick the stocks of companies that are doing well.

Do you know that has worked this year, and all of the endless focus on the macro has totally shrouded and blinded you from its success?

Fall back to it.

It's still working. Just close your ears when you hear "risk-off" because you will most likely be selling stocks of companies, NOT some basket that doesn't exist other than in the mind of the faddists and the promoters who are so successful at hijacking the mindset and the airwaves that formerly existed to attempt to tell you where you could actually try to make money.

Why?

Because instead of saying, "I guess everything that happened last week was wrong," you can say, "OK, back to rationality, the S&P futures took too many stocks higher, we got too overbought, and now we sell the stocks that shouldn't have rallied" and you wait for the good ones to be forced down by the risk-off garbage "thinkers."

Sorry to be so blunt, but hopefully by the end of 2011 we will have figured out that the binary configuration of a few traders has nothing to do with making money and everything to do with losing it.

You only embrace the "strategy" if you don't have time to do the work on individual stocks or you like roulette and think you can see where the ball is going to land faster than others can.

I have tried that. Many times.

It doesn't work.

And it is not a strategy.

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