This morning, we navigated the waters of this tricky stock market. I didn’t trust the rally we experienced overnight, and said so. Actually … what I said, was that I had no idea what was about to happen. What we did know, is that the morning rally meant nothing, and we would have to need to see if we could receive a one hour candle close above the 1955, 1956 region in the September e-mini S&P 500 contract.
Which never happened.
So again, there was no reason to be long.
And as you may have seen …. again in the stocktwits stream … I shorted USD/JPY for a paltry 29 pip profit. So that’s about 58 pips in two days. Much less the 300 pips I made last week.
Regardless. Know that as of this evening, we are 100% cash, and remain so overnight.
Now, let me talk of another matter.
I have heard that some want to compare this event, to the 2008 crisis. I’ll just say it right now. I think that is insane. This looks absolutely nothing like 2007, and 2008. I heard some yahoo blathering on about derviatives, and how we would have a repeat of 2008 because of derivatives.
Are you kidding me?
Were the people making such claims even in the market in 2007, and 2008? Some of this we have already discussed with our own clients, and shared the metrics we are observing. But for the sake of making sure everyone understands our stance …
First of all … it’s OTC derviatives that were the problem in 2007 and 2008. Not regulated derivatives, which most of us trade. SPY could be, of a sort, considered a derivative, after a fashion. Your AAPL Puts? Guess what? Going by the strict definition of the term, those are derivatives too. OTC derivatives were the problem. They still are a market of size. However, from my understanding of the matter (which could be in error, I admit), they have been shored up by a massive (and I do mean massive) clearing house. If I’m not mistaken, it now goes through London. There may be problems with the limited number of players? However … the cash is there.
Which leads me to my second point. They are O.T.C. Which means that they are not on a regulated market. Which means they are difficult for the rest of us to look at, and examine.
Which leads me to my third point. If there was a problem between the banks? You’d probably begin to see a pretty large up-tick in interbank loans. Everyone and their brother was wanting to talk about the risk of high yield to equities (new folks? Think of it as the spread between JNK and SPY) as increasing showing an uptick in all credit risk. But for pities sake … it’s high yield !!! Of course, during risk events in an improving economy, you’re going to see the spread there widen. So what about quality bank spreads? Funny how the ‘experts’ are not touting and discussing quality bank spreads. Because you had best believe that the bankers will stop trusting each other in a heartbeat if there is a problem in that quarter. And the simple place to look … to see if that is the case … is interbank loans. Three month LIBOR has had a slight uptick. But not much to really write home about. The TED spread was near historic lows.
There are definitely storm clouds on the horizon. Could we spin, via tail-risk, into an unknown event? Sure. But because of the issues were on-hand in 2008? Hardly. Are the events in China causing a new type of risk event here? Absolutely.
At the moment, we are 100% cash. There was no reason to get long today. The markets still look absolutely ugly. 30’s have been getting whipped around like nuts. I’ll pray for anyone trying to guess the direction of the long bond.
I leave you with the sounds of an approaching storm …