The T Report: The Intellectual Dishonesty of Being Long Stocks

Posted by on Aug 24, 2012 in Uncategorized | No Comments

The Intellectual Dishonesty Being Long Stocks

I have trouble making a strong case for stocks. I can find some very convincing reasons of why credit can perform well, especially CDS, but it is difficult to find many reasons to like stocks here, yet I do. Apple has its own special little place of pride as I now want to short it and think it is overvalued, but am scared to touch it.

It is a weird predicament I’m in right now. I could write pages on why stocks should be lower, but in the end, I think they are headed higher, and it is almost exclusively due to central bankers.

I think the ECB needs to do something. I actually would agree with a plan that in the short term provides cheap financing for the weaker countries, so long as it is accompanied by actions that should restore balance over time. I think they should do it, and even more importantly, if they don’t do something the consequences will be bad. I see no way to avoid a severe global recession if the ECB doesn’t act, so I think they will.

I don’t see the need for the Fed to act, but with data coming in weaker again, the market is starting to rely on QE again here. I don’t think the Fed should do another round of QE, but what I think doesn’t really matter. I’m not sure it will do much for the economy, or that it will do much for stocks at these elevated levels, but it would do something.

So basically I’m long because the central bankers seem set to act and it isn’t fully priced in. In fact, the market still strikes me as being too bearish. Far too many people are pointing out things like VIX and volumes as sign of imminent collapse, that I don’t think we see that sell-off. I still have some September puts as the risk of a sell-off isn’t negligible, but I think we have one more push higher, especially as some bears got sucked into shorting in the past two days.

I still think CDS offers good value, and am looking for IG18 to go to 95 for a variety of reasons. I take some pride in that analysis. Being long stocks here seems a bit shameful and leaves a bad taste, but in the end I still think that is the right call for now.

Have a great weekend.