Freaky Friday Random Thoughts
By Todd Harrison Feb 17, 2006 9:19 am
Enjoy your three day sway!
- One of the more interesting tidbits I've picked up is the high level of correlation in hedge fund returns. With 9,000 funds chasing performance, the notion of compression takes on a slightly new slant. That's not a noodle for today's trading but something to keep in the back of our crowded keppes. Lopsided leans historically lead to the most widespread screams.
- I concur with Professor Tom Peterson. If you haven't read Professor Fil Zucchi's real estate vibes, you should put it on your weekend reading list.
- There was a time when I had the PPI circled with a big, red magic marker on my catalyst calendar. Through the last few years, I've lost a measure of respect for these measures of inflation. Even still, and so you know, Beeks swung by this morning to let us know that the month over month increases were slightly more than expected (+.3% (vs. exp +.2%) and +.2% (vs. exp. +.4% ex-things we actually need to survive).
- Live pictures from Red Dye!
- We recently eyed the multiyear trendline in the commodity proxy (CRB 320) as part of our discussion on energy and metals. And, as you know, the first test held yesterday as both sectors enjoyed a rather spirited sprint. The risk to my thesis (that these groups are our long-term secular leaders) is outright deflation. Where I net out, and what I chewed through with Bernie Schaeffer last night, is that I just don't see it with the DJIA at five year highs and the brokers at all-time highs. I continue to believe that energy and metals will outperform the over-owned tech and financial sectors for many more moons.
- Minyans looking to read the Worth Magazine article on Minyanville can find it in our press section. Enjoy!
- We'll be hosting an impromptu South Florida Minyanfest Sunday from 5-7pm and area faithful are welcome to attend! Queen Vanessa will be there. So will the Margarita Maven herself. And Professor Bennet Sedacca. And Minyan Doug Kass, Minyans John and Robin Dunn, Minyan Wendy Wanderman, Minyan Julio Beaton, Minyan Tommy Carden, Minyan Scott Sullivan and so on, and so on....
- Mini-Minyan Mailbag
"Toddo- Given the historically low volatility, even with nearly everyone saying "buy volatility!!!" intuitively it seems that the buy-write funds are a bit too comfortable.
Do you think that for any bear market/correction to start (that many are looking for), the market needs to see a blow-off top driven by buy-write funds that get burned on the options-side? A "buying capitulation," analogous to the buying capitulation by the shorts/value managers/Julian Robertson, et al fund liquidations in 1999/2000? Thanks, Minyan John"
"Buy-writes," by definition, synthetically sport the same risk profile as naked short puts. Thus, the 'burn' will come on the downside, not the upside, although short gamma (either way) certainly has the potential to exacerbate volatility. As does expiration, which may have helped contribute to yesterday's upside jig. February index "pull" will be alleviated with this morning's expiration while single stocks, as you know, expire on today's close.
Your question, however, is a good one and possibly independent of the influences you suggest. I opined early this year that a strong first half wouldn't shock me although I'm not aggressively positioned that way. Instead, I've been trading "tight and two sided," nibbling on volatility when I can and accumulating gamma. That hasn't paid off yet (the VXO is flat for 2006) but I'll again offer that the disconnect between perception and reality is as wide a chasm as I've seen in my career.
- And just like that, the opening bell has arrived! Hit 'em hard, Minyans, and understand that liquidity will thin as traders sneak out the back door to focus on the important stuff.
No positions in stocks mentioned.
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