HOW SHORT-TERM TRADING CAN LEAD TO XANAX DEPENDENCE AND A FASCINATION WITH CZECHOSLOVAKIAN HOOKERS
If there is anything that should have become obvious to even the most casual market observer it is that the current investor class has been sealed in a mindset that believes reversion to the mean is a normal function of the financial markets. That means that a rally must always be met with a pullback of some substance that creates the choppy trading environment most traders have become accustomed to over the past several years.
The truth of the matter is that a majority of traders (hedge fund managers and individual investors included) missed out on the 2009 bottom. By the time their raisin balls had grown into the standard issue testicles the in the 3rd - 4th quarter of 2009 the rally started becoming choppy. In the first half of 2010 we had the flash crash. And then a devious trading range developed until QE2 was announced sending the markets rocking higher.
We just came out of 2011, which was on par with 2008 in terms of fear created and the potential for ruinous economic calamity. This again caused investors to bite into the "I must sell rally" mentality that the market has so brilliantly programmed into the mind of investors so that it can have moves.......like this.
Per the usual, the mindset has been fixed on the incorrect prize. That prize sees everything on a short-term basis that is no longer relevant. That prize will cost investors a pretty penny when they do any of the following:
1. Hedge prematurely
2. Sell short in anticipation of a decline
3. Remain in cash for fear of Europe, slowing earnings, World War 3 igniting when Israel attacks Iran, GDP slowing, unemployment rising, a large bank going under, oil going over $110, China crashing etc.
You see what we have here is the classic wall of worry. Investors all know about the wall of worry. But when it is staring them right in the face, they fail to realize that it is there. And that is exactly what wall of worries do to investors. They create such anxiety that investors have no doubt that the end is nigh. The fact that markets thrive off of such anxiety doesn't enter the minds of the collective investor class because anxiety doesn't allow it to.
And that's what we have here. We have a non-existent individual investor class that is hiding in money markets, CDs and bonds. We have an overrated hedge fund class that is stepping back into the mix but will sell at the first hint of danger. We have a mutual fund class that has seen redemptions cause managers to be so fearful of losing their jobs that JNJ seems as aggressive as Iomega in the late 90's.
In the meantime, the market continue to grind higher. It's not your job to question every tick, piece of data and contrarian indicator you can get your hands on. The essence of the market is to ride trends until completion. That's where the money is made. This fact has been forgotten by most in favor of a hyperactive strategy that ends up making brokers rich, leaving investors with rabbit ears, an addiction to Xanax and a fascination with Czechoslovakian hookers.
The landscape has changed...change with it.
