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Rotation Nation


A market with no alternatives but to take more and more risk...


Prof. Succo -

When they can't hammer the market when Bank of America (BAC), Citigroup (C), JP Morgan (JPM), and General Electric (GE) are near their lows, and after today's earnings from BAC / C - not to mention breadth and all the other indicators - all leading me to "think" we should get hammered BUT ARE NOT, it seems like there is massive rotation out there (more than the norm). I know it's put up or shut up time with earnings season, but boy is it frustrating when we should crack but don't. Just wondering your thoughts on my little tirade...

Minyan Michael


Rotation in stocks is very active, while the market itself is not moving much, despite the ballyhoo from some. There is a very good reason for this.

I have described this as a liquidity-driven market, and described the symptoms of such a market. With so much money (fiat) out there from an over-stimulative Fed, when one stock goes down from selling they simply buy another up with the "new money" coming in.

My little niece, twenty two years old and making basically minimum wage, said to me last night, "Uncle John, I have saved $2,000 and just can't get any interest on the money anywhere. So I was thinking of buying PG stock with half of it."

That is a liquidity-driven market, a market with no alternatives but to take more and more risk. That is the level of sophistication that is buying stocks right now.

I tried to explain to her that everyone else is in the same boat and that is why stocks are going up. She looked at me like I had two heads. I am guessing that she bought the stock today.

Our strategy of being long cheap volatility on individual stocks, and not indexes, is therefore making a little money. And because that volatility is so cheap, and paying for itself, it leaves us long tail risk for free. We make money on Citigroup on a day like this, and that makes up for the zero volatility in the market.

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position in C, BAC, JPM, GE

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