Thursday, June 16, 2016

Brexit Reinforces Idiocy

The financial community knows nothing.  I thought Grexit took the cake when it came to so-called financial pundits making a mountain out a mole hill.  But this Brexit issue might be even more idiotic, if that is possible.

I guess it gets boring talking about the same old same old central banks pushing on a string.  There is only so many times you can talk about the Fed and the ECB and the BOJ without repeating the SOS over and over again.  But yeah, that is the most important thing in the market.  By miles.  On the level of importance, I would put Janet Yellen's lunch menu before a Fed meeting as being more significant than the Brexit vote.

Last time I checked, the UK uses the pound, and their interest rates are much higher than the EU.  Can you really say the UK is part of the European Union?  Will Draghi be buying Gilts anytime soon?  No.  But I am hearing talk about a Brexit leading to a break up of the European Union.  Or a financial crisis.  Or a recession. That is laughable.  I am sure most people didn't even know that the UK was part of the EU, much less a member that could cause a break up of the whole EU construct.  Any trade deals that evaporate because of Brexit will be replaced with another deal.  Making trade deals is not rocket science.

This Brexit is absolutely the biggest red herring I have seen because the market really does have a lot of problems but no one is thinking about them right now.  It's all Brexit, all the time.  Everyone knows there is no earnings growth.  Most know that US stocks have high valuations.  But you also have diminishing level of stock buybacks, increasingly worse global demographics, and stagnant productivity growth because there are no new technologies that really matter from a big picture perspective.  Smart phones and LCD TVs don't increase productivity.  The incremental benefit of faster computers is providing diminishing returns.  I can use a computer that I bought 8 years ago and be totally fine trading with it.  I definitely could not say the same thing 8 years ago.

So if Brexit is so meaningless, why am I shorting?  Because we got way too complacent last week, while at the same time being at the 2100-2120 resistance level, with no real reason for being positive other than the Fed being on the sidelines, which most bond traders knew anyway well before the Fed meeting.  I am just looking for singles and doubles with the S&P.  It isn't a great market to trade at the moment.  Unfortunately I missed the home run trade of long bonds because I was too patient waiting for the absolute perfect levels to get in to ride the wave higher.  Not capitalizing on this bond super rally is my biggest trading regret this year.

Staying short until either close of today or Friday.  Don't want to overstay shorts.  Just wait for my downside levels, and if they hit, I am covering and waiting for the next chance.  S&P 2044 is very much possible by Friday.


MM111 said...

Bit of a reversal since now at 2077. I was thinking that this downturn would carry on until Brexit 23rd June outcome and then europe and Us markets would rally? Do you think this just a little daily bounce or has bullishness set back in again?

Market Owl said...

I think we will bottom early next week. We will probably be rallying before Brexit vote is even out. In any case, the best strategy is to short into the relief bounce post Brexit. It will not last long (probably be over by the following Monday.

MM111 said...

This is getting quite confusing now.