Tuesday, June 20, 2006

Perfect Storm / AKA fat tail city

"The markets sold off this afteroon because of inflation concerns"

"The market appears to be concerned that the Fed may need to raise rates at the next policy meeting"

"Traders are jittery due to concerns about economic growth"

Heard any of these excuses for the market we are in?

It's almost comical how the talking heads on CNBC and Bloomberg will spout these things as their explanation for why the markets are down.

So here's mine:

We hit the confluence of several very unfortunate situations at the same time:
  • Demise of the yen - carry trade has sucked money out of the markets worldwide
  • The fed unfortunately decided to prop the economy with low interest rates, creating a mess called a housing bubble, which they now have to slowly pop (and don't believe the hype about inflation - that has nothing to do with it)
  • Knuckle head momentum chasing hedge fund traders pushed materials stocks too far too fast
  • Ben Bernanke's "Transparency" policy has left traders to their own neuroses and worst case scenarios at precisely the wrong time

So now that all these things have happened, we have a selloff that is building on itself thanks to the daily blow up of small and large traders. Traders are much "smarter" and more hedged right now, which only seems to mean the death is slower, more gradual and from more directions than in previous years.

But don't worry:

"Equities are at some of their lowest valuations in years"

"We consider ___ to be very attractive right here"

"The markets are poised for a bounce"

No agenda here, I'll trade in whatever direction the market is going. But I needed to get that off my chest.


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