Debt ceiling fiscal cliff market set-up: Flip the flipping flip it
Senator Pat Geary: I want your answer and the money by noon tomorrow. And one more thing. Don’t you contact me again, ever. From now on, you deal with Turnbull.
Michael Corleone: Senator? You can have my answer now, if you like. My final offer is this: nothing. Not even the fee for the gaming license, which I would appreciate if you would put up personally. — Godfather II
You guys know that we’ve had a lot of success and profits over the years when we successfully “Flip It”, meaning that we take exactly the opposite of a wide consensus and/or sentiment in the markets and try to position ourselves in the exact opposite direction of what everybody’s expecting.
Over the years, I’ve developed a “Who’s more scared right now, the bulls or the bears?” indicator that has about a 90% hit rate when the sentiment has swung to one extreme or the other of over 90% saying it’s either the bulls or the bears who are more scared. You see other more “objective” and consistently polled data that can also be great contrarian indicators when they hit and/or stick at an historic extreme. The AAII poll is probably the most famous of these, and Mark Hulbert’s newsletter bull vs. bear data is helpful when it’s at extremes too.
I bring all this up today because you’ve seen me whistle past many supposed downside catalysts when the markets and sentiment has freaked out about things like past debt ceiling fiscal cliffs, EU debt crisis, and other macro/geo-political issues that have caused some serious short-term pullbacks during this ongoing bubble-blowing bull market. And currently we have a “Flip It” set-up that’s exactly a “Flip It” to our past “Flip Its”, if you follow me.
That is, during this latest potential panic-inducing macro/geo-political issue, we’ve got a marketplace that’s seemingly “learned” from the past such coming and going of such issues and remains “stubbornly” near all-time highs. And as this latest debt-ceiling fiscal cliff crisis continues to stretch on in days and weeks and the markets continue to stick near these all-time highs, there’s a self-fulfilling positive feedback loop kicking in as traders and investors look past the deadline and assume the bubble-blowing bull market will immediately resume its climb into year-end.
Both the politicians / regulators and the markets’ participants seem finally to have grown “too” accustomed the past cycle of having the politicians only forcing in “negotiations” on these macro/geo-political financial system issues when the markets crash in panic. A negative feedback loop then ensues where upon the politicians think they can force the markets to force them to vote for things they otherwise “wouldn’t vote for”, so that the bubble-blowing bull market can stay in place forever.
And so we find ourselves in the current set-up, where upon the politicians / regulators as well as the markets’ participants have come to a standstill in this process and the markets aren’t crashing in a panic and so the politicians /regulators can’t finish playing their part of the “well, I didn’t want to vote for this stupid bill that we all know is stupid and won’t work in the long-run, but what else can I do to avoid a market crash?” game. And I don’t feel comfortable being part of this set-up, and my feet to fire guess about how it will play out in the near-term is that we’ll have a 5-10% plus pullback in the broader markets when these current macro/geo-political crises play themselves out in their fait accompli of passing some stupid bill at some point in the next couple weeks if not sooner.
I remain bearish for the near-term and think that being cash-heavy is probably the best approach to the stock markets right here, right now, in the mid-October 2013. I’d like to get more puts on the sheets if the markets spike before or immediately after a so-called resolution is struck between the Republican/Democrat Regime factions. And I’d like to cover some of these recent shorts and other hedges and put some money to work on the long side again if the markets pullback big for their next move.
Long-term investors should continue to stick with their Revolutionary Investor Stock Picks, even as I do suggest trimming some of these huge gains you’ve likely got in many of those stocks over the last few years.
And the rest you, well, you don’t have to spend every day or every week or every month trying to maximize your portfolio’s profits. There’s a time for getting more defensive and a time for being more aggressive. I quite prefer remaining defensive for now.
