To say being short today is difficult would be a great understatement. It has been a brutal and exhausting trade. Regardless of people claiming that I or anyone short may be a perma bear or simply unable to read the market has failed to understand one simple truth. If you shorted the market in May you made money. If you went long the market in May you lost money.
I have personally been very aggressive with this trade in terms of letting positions run for I believe in my heart this is one of those few times in one’s career where a lot of money can be made. I’m not talking a few months income, I’m talking a few years. Such a trade should not be nor is easy. Shorting the end of the global debt game will go down in history as one of the most difficult. When it truly happens as I always say only history knows that answer.
As for today here is how I view what is happening.
Credit continues to highlight growing stress within the intebank market. From sovereign yields to EUR basis swaps the comparisons to the last financial crisis are unmistakeable.
The Fed and other central banks acknowledged today just how bad things are. Whether rumors of a large French bank ready to go under last night are true we do not know but there is no reason to think they are not. Nor is there a reason to believe it would be limited to just one bank.
Today anyone looking to go long has initiated. Anyone looking to exit a short has covered. We are closer than ever to this market being all in regardless of which side of the trade participants choose.
Probably most important is we have history as a guide. Just 10 weeks ago the first swap line with other central banks was created and after a few days of rallying the market sold off 150 handles in the SPX in weeks. In 2008 the selloffs were even more epic. There is no reason to believe today is any different.
The last thing I would like to share is a very simply and eloquently stated lesson from Martin Armstrong. Like anything in life we often need to step back and reassess what is going on. Too often we get caught up in the day to day to miss the big picture. The compression of time blurs our ability to think straight.
If we run a sentence all together failing to delineate it into words, we cannot understand what we are looking at without close inspection. Time presents the same problem. By breaking the above sentence into words, we can suddenly see the structure, and comprehend its meaning: “If we look at time closely we can understand its nature and how to use it.” Just as we divide the letters into comprehensible words, we must do the same with Time. Once we learn that Time can be dissected into understandable segments, like words, an entirely new world will appear. We will look at cyclical structure like never before!
Be careful in this market. Although by nature of this site I express my own trading style and risk tolerance it is not for everyone. I trade options and know going into the trade what I can lose. If I lose it all I live to fight another day. It’s quite possible we rally into the morning session tomorrow but I do believe we are at a reversal point. Considering the gaps in the daily charts and the increased leverage among longs and reduced interest among shorts the move will be swift.
Few caught the August selloff yet the majority will tell you why it will not happen again. It’s just like the housing market where few caught the subprime selloff yet the masses are the most vocal in calling a housing bottom.
There are no guarantees in this business but if you step back and look beyond the ES futures and study credit I do believe the picture is quite clear.
Images: Flickr (licence attribution)
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