Monday, October 05, 2009

Roubini and the Patty Hearst Affect

Roubini was on CNBC earlier this morning. I missed much of it but he was suggesting the better-than-expected bounce in equities is overdone and the market is set-up now for disappointment; that unemployment is too high for a robust recovery; that consumer confidence, ISM and other recent data is suggesting a U-shape at best, or else double-dip recovery.

Nothing surprising, but that last part is very interesting, as it suggests Count Roubini may actually get bullish when once the market finally retracts. That could end up laughable - that Roubini becomes bullish in a bear market, fixating then on an economic recovery, whatever shape he thinks he sees.

I'm not going to suggest the bear market will indeed resume (I won't suggest it will not either), but here is a great example of why predicting the future is ill-advised in this business; even if that is part of your job description. Psychologically, Roubini is ready and willing to turn bullish on equities - he just needs them to go down first!

Perhaps this is a bit like the Patty Hearst affect - the idea that one can grow fond of their captors. That bears become more bullish once incessant incessant incessant bull-pain suffered, is finally alleviating.

We'll see.

Back to now, the market has pivoted nicely off of Friday's early lows, but the major indices have a bit of ground still to make up to manage higher-highs.

Leadership growth had declined less than the averages (which is bullish), but so far very few names have vaulted to higher-highs. RINO, an exception, has powered 32% from Friday's low to today's intraday high.

Meanwhile, salivating bears are pencil-pointing to a smathering of negative technicals, which draw but one (encore) conclusion - an ensuing failure is looming.

A shocker I know. But I'm noting here that bears may not be so confident now on the way down. This idea is new, and, well, we're not really going down yet either. But it will be worth monitoring when/if the bear resumes. Will bears become less bearish once they finally get a break?

Fortunately for me, I am still an idiot. And while I did re-trim smaller on the strength today, I see no reason to get overly conservative, or short even, until leadership begins behaving badly.

Lower-highs en mass would be a concern, if this remains the case once the market reverts lower. A smash to lower recent-lows would slow me down even faster. But in the meantime I'll keep old, slow and not such a hero (not like you, tough guy). If I had sense I would be shorting right here and now (again!). Instead I remain pointed longer, spitting-up on myself while spitting-out, mostly bull grovel.

And if we do smack-lower, breaking this up-trend with authority, it will be most assuring to know that Dr. Roubini is looking at where to bid for my shares as I am looking to get short.

Recovery or not!

-Total Position: ~2.25-to-1 net-long, considering levered TWM hedge.
-42% invested
-Pure-longs = 34%

Currently Long (according to size): SXCI (6.5%), CFSG (reduced today, 6.2%), DGW (5.8%), BCSI (4.9%), CLW (4.2%), SWM (reduced today, 4.1%), RINO (reduced today, 2.8%)

Currently Short (according to size):
-TWM-long (Russell 2k Dbl-short; reduced friday, 7.8%)
(Note: inverse-ETF TWM represents being dbl-short the respective R2k-index).

Futures Accounts: no position

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