Basically, This Market Is A Portfolio Manager's Worst Nightmare

(This guest contribution is from The Mad Hedge Fund Trader)

After speaking to a gaggle of economists, portfolio managers, and traders the last few days, I’ve had one of those “Eureka” moments as the markets have shown their hands. Those that delivered the dramatic, heart stopping moves last year, like stocks, commodities, oil, precious metals, and junk bonds are on the slow boat to nowhere. Last year’s wall flowers, like currencies and Treasury bonds, are trending nicely, delivering plungers some serious coin.

What’s more, I think these trends, or non trends, will continue for the next several months. That means that the S&P 500 (SPX) will remain around a tedious 1050-1111 range, and that implied volatilities (VIX) for relevant options will continue to bleed to a lower level. This market is a portfolio manager’s worst nightmare, and a trader’s dream come true. They, the nimble and click happy, can sell into every rally and buy each dip, confident that stocks will neither crash, nor break out to new highs. They say markets have to climb a wall of worry. This one has to climb Mount Everest. Commodities (FCX) , oil (USO), and precious metals (GLD) are showing the same indecisive behaviour.

The cross trades I have been recommending, long Aussie/euro, Canadian/euro, and short the euro/yen, have been delivering reliably all year. I have also been able to wrest away a couple of points from the 30 year Treasury bond markets (TBT), (TBF). The March futures have peeled back from a 119.5 high on February 5, and fallen as low as 116.5 yesterday. This is all happening because the markets are now transitioning from last year’s parabolic dead cat bounce to the 2%-2.5% growth scenario that I am predicting for this decade. Political gridlock and the attendant noise level don’t help either.

Keep selling the rallies, like the one today, because I think we’re on our way to the 112 handle by the summer. You’ve got to work with the market you have, not the one you want, and these trades could be your bread and butter for the next several months.



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