Thursday, January 21, 2010

Too Much Information

"FDR, you said there has never been a better time to go short. How confident are you that we'll see another nose dive? Would you recommend 50/50 long short or 25% long, 75% short? Would you recommend going 100%? 200% short? Just curious. What would you recommend to your clients? ... ... FDR, what do you think about EDZ? 3X emerging market short etf? I see a lot of problems with emerging markets being over-leveraged. Half of Europe is overleveraged, and China really hasn't experienced much of a downturn yet and could face trouble ahead. Curious to get your take on it."

When it comes to individual picks, is it more complicated than forecasting xyz will dive by 2012, 2020, or 2030, though almost all stocks will severely deflate in the macro.

xyz might be a great buy or sell, but a better day or week or month-long opportunity might merit a switch out of it, then back to it, etc. Listing all those moves in real time would knock everything else in the blog off the front page. That is why I created PW watch as a separate service, so PW subscribers can watch detailed symbol and weighting changes in near real time. When I anticipate a large, possibly counter-intuitive change on the horizon, I issue PW subscribers an email alert in advance.

For example, I recently issued an email warning to to PW subscribers explaining why I had covered the vast majority of my metal shorts, and listed my price targets to reset that short position:
December 20, 2009 -

Advance Warning:

"The metals market always trades very thinly over the Christmas-New Years holiday week. Combine that with an anticipated low volume countertrend uptick, and then add volume returning in earnest as the the new trading year begins, and I hope to seize a golden opportunity with real money and virtual.

I'd like to catch gold around $1160; silver $18.40, possibly on, or a few days before, the final trading day of 2009. I'd also like to see a lot of enthusiastic "go long" buzz surrounding a metals mini-spike. Regardless, if we get a mild to strong ascent near the end of the trading year, I anticipate laying a rather large (short) bet down, possibly minutes before the casino closes for 2009.

I'll probably cover some other shorts going in, to set the scale of the trade I want."
Just after the new year, I wound up resetting my precious metal shorts, along with a very substantial weighting change. For silver, I reset the short position as it counter-rallied past $18.46. For gold, I reset the short position after it touched $1162 in the aftermarket.

Obviously, I was not recommending being long precious metals at any time, just giving my short position a rest while gold/silver counter-rallied within a larger Bear Market to my short term targets.

I don't provide that type of micro-view in the blog because it would constantly bump off the front page and confuse the people who did not care to tune in, perhaps, a few times a day.

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