Monday, May 17, 2010

Trader's World, Trader's Market

The trading range for stocks and other commodities a la 1994 that some strategists have foreseen looks to be occurring. In the absence of a new recession starting this year, a major bear is unlikely, but from the exalted stock market peaks of not long ago, a 20% decline from peak to trough such as were seen in Jimmy Carter's first couple of years would be quite reasonable. Some large companies' stocks such as Nokia and Goldman Sachs are in major confirmed downtrends; others such as AAPL and ISRG have barely been touched. So it goes.

In the metals, the more precious they are, the less they are down today. Gold is barely off; silver is down 2+%, platinum 3+% and palladium 5+%. And the Shanghai general index was down 5+%.

In this over-financialized world where the traders at GS and their bosses don't really care about the success of their own company's stock but rather about their bonus, this is just what they ordered. Lots of debt, lots of financial product, lots of roiling of the markets creating opportunities for revenues; lots of sound and fury, but to the detriment of society at large.

Does any trader who is bidding up the price of long Treasury bonds really wish to hold a 30-yield U. S. Treasury in his own personal account for 30 years? To ask the question is to answer it. If there is one in a hundred, that would be a lot in my opinion. But no matter. China is tightening and may now be in the early stages of a real estate collapse. So much for a strong yuan.

We are seeing the natural evolution of a world with too many promises. These promises include contracted debt as well as social promises including unwritten promises such as are inherent in Medicare and Social Security. There are too many imbalances for comfort.

This is why many of us believe that we are in a secular bear market for stocks and probably low quality assets such as have large run-ups the past year. Traders are, strangely, thinking long-term and for now going with quality.

Copyright (C) Long Lake LLC 2010

No comments:

Post a Comment