WASHINGTON, February 8, 2013 – We continued to peel back positions yesterday as the market continued its yo-yo trip up and down, as our tea leaves have been indicating a nasty market correction is imminent. And it is. But that said, Mr. Market decided once again to take an optimistic turn, at least as of 12 noon today, and here we are, up roughly fifty points on the Dow. Who knew?
The whole thing is getting a little silly and a lot unpredictable. The dollar is up today vs. the Euro, so stocks should be going down as they always do when this happens. But they’re not. Which is curious, as the dollar was up yesterday, too, and the market got smacked upside the head. While we don’t agree with some in the professoriat that the market is a “random walk,” it sure is getting hard to defend our position these days, what with the averages being dominated and controlled by HFTs and their video-gaming approach to investing.
Add to the HFTs a Federal Reserve that is blasting a tsunami of liquidity into the market for the express purposes of driving it up (no matter what they say in public) and nearly every tool that analysts and investors have used to pick stocks over the decades has been rendered at least temporarily unreliable. Ergo, investing in this market is more like a crap shoot every day.
In fact, in many cases, it’s seeming to make more and more sense to invest in the veritable plethora of generalized and specialized ETFs—baskets of stocks and/or bonds that target investing areas rather than individual stocks. That’s because HFTs, and their friends the algos (sometimes one and the same) move on news and/or rumors on sectors or government actions, not individual stocks.
So if the HFTs are hot today on, say, tech investments, you go with QQQ, representing the S&P 100, which pretty much covers these bases. Or, since the Qs (as they are called) are overly weighted in volatile Apple (AAPL) right now, QQEW, which encompasses the Qs again but with each stock in the average equally weighted, is a less volatile bet. And so forth.
Picking individual stocks these days is still far more lucrative if God is on your side. But if you get caught in an HFT rumor-driven move, even if your individual stock is earning the greatest profits in history and pays a 20% dividend to boot, you’ll still get killed if you’re in this stock at the wrong time. Yeah, it’s unfair, but we have to live with it since the SEC doesn’t care about enforcing its own rules and since the brokerages and exchanges need the HFT business since the bulk of the little guys have exited, possibly forever.
Yeah, the press tells you that “the small investor is back,” but that’s a lot of baloney. Volume still rarely matches the volume of trading circa 2006, right before the smart guys, bigwigs, and our benevolent Federal government screwed everything up, big time, and used your and my money to reimburse themselves and their friends for their screw-up.
We could go on, but you’ve heard the song before. Suffice it to say that the market is getting wobbly, and one of these days soon, if someone in government or in a whack-job country like Iran or North Korea does something really stupid—always a clear and present danger with these cretins—the market will do a real Wile E. Coyote, vanishing into a vast canyon below with scarcely a poof of dust in its wake.
Rather than holding the bag for the HFTs, the exchanges, and the fat cats, we continue to peel out of this market, save for select REITs, MLPs, and a few stocks we bought via IPOs that our brokerage requires (more or less) us to hold for 31 days before selling. We’ve been scalped often enough by the 1% to remain cautious, even on another swell, bullish—yet suspicious—day like today.
That’s it for now. Have a great weekend, and we’ll see you on Monday.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
Any positions mentioned above describe this author’s own investment decisions and should not be construed as either buy or sell recommendations. The current market is highly treacherous and all investors travel at their own risk, so caution should be exercised at all times.
Illustrations, charts, commentary, and analysis are only the author’s view of current or historical market activity and don’t constitute a recommendation to buy or sell any security or contract. Views, indications, and analysis aren’t necessarily predictive of any future market or government action. Rather they indicate the author’s opinion as to a range of possibilities that may occur going forward.
References to other reporters, analysts, pundits, or commentators are illustrative only and do not necessarily represent an endorsement of such individuals’ points of view. If specific investment vehicles are mentioned in any ar500ticle under this column heading, the author will always fully disclose any active or contemplated investments in said vehicles.
Read more of Terry’s news and reviews at Curtain Up! in the Entertain Us neighborhood of the Washington Times Communities. For Terry’s investing and political insights, visit his Communities columns, The Prudent Man and Morning Market Maven, in Business.
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