Planet Yelnick

Broken Pattern, Token Risk

I appreciate all the concern in the comments on my transit back through Narita, but it came and went and I still have my hair. I spent about an hour in transit, and the food on the return was worse than normal, telling me that it was not sourced from Japan. 

The risk I took was very low. I wrote about it in my other travel blog: Bananas Are Radioactive Too. The risk I took was about the risk of a daily commute. You guys who commuted for the six working days I was gone were taking on much more risk.

Investing trades in risk and investors get it wrong all the time. Right now the bet is not to fade the Fed, to believe QE Infinity will continue to pump this market. The calls to end both QE and the zero interest rate policy (ZIRP) are increasing. Andy Kessler just explained in the WSJ how ZIRP crushes capital formation and stifles the recovery. Risk on.

The other bet is that the four-year re-election cycle will pump the market. This is the most predictable cycle, and its causation is clear. Yet Obama shot this bullet early, right away in fact, and the Stimulus is already fading to the point it is acting as a drag on GDP. He is facing political headwinds from the grumpy Republican House, and if he loses QE, he is left with only a war to pump the economy. Libya? Yet another Middle Eastern war threatens to keep oil prices high, acting as a bigger drag than war-spending. 

You can see the impact of this in this chart showing the current market vs. the normal re-election market. Now, "normal" here is an average of many years, so we should not expect any one market to actually match the curve; also, the curve is not combined with statistical variability (eg. Bollinger Bands), so cannot we easily assess if this one is still within the bands of "normal". The key, though, is the extent the recent dive has taken this market off the normal pattern. Broken pattern betokens bigger risk.

Skip Danger

The news over here in Asia about Japan is not as strident as Americans see back home on CNN. My family keeps urging me to skip danger and fly some other way home than through Narita, but there is no evidence of radiation floating down towards Tokyo. Of course, winds may change. 

A more immediate danger I have been facing is to my pocketbook & digital lifestyle: Internet at my hotel sucks. To skip that danger, I scored a great deal on a 3G SIM in Singapore, and wrote about it in my travel blog. Just a few years ago we marveled at going hotel to hotel around the world and staying connected, but now the expense and limitations of hotel Internet are glaring. Rather than suffer $150 during my stay for lousy connectivity, I found a way to pay $15 and get complete 3G nirvana. If you travel, you might take a look. The wireless world is rapidly eclipsing the wired. 

For you traders, it has been a big week. Some of you are dog tired. Time to lay back and enjoy the weekend! Your favorite indicator, one way or the other, the STU, expects a bigger slide next week. So far this correction has fallen in three waves, and today's reversal has all the earmarks of a wave 4. If instead it pops on Monday above 1294, something else is going on. Better news on oil (Libya) and my flight home (Japan nukes) could spur the pop.

Of course, if the global winds shift, all bets are off. The G7 intervention is already fading, with the USD down to new lows. The toxic Dollar cloud may drift over Tokyo, too. Japan may begin to swap Treasuries for Yen, bringing the wealth back home, and unbalancing the Fed's QE plans. 

Another site you might want to check out is Mamma's new Skip Danger stock forum. Frequent readers of the comments know that it is a place to continue the sort of dialog that made this site worthwhile.  

If you do go check it out, drop back and let me know what you think.