Kass: Mr. Market's Amnesia
NEW YORK ( Real Money ) -- Yesterday there was a late-afternoon stream of questions in the comments section that got me to thinking and ultimately writing this morning's opening missive
There is no permanent truth in the financial markets, and I promise that what I describe in his column will change and a trending market will ultimately reassert itself.
But, for now, we are likely back to a market without memory from day to day.
It is a market that is likely positioned to value and reward trading (sardines), not investing (or eating sardines).
Monday's price action is symptomatic of the challenges, volatility and opportunities of an unsettled market backdrop that is induced by the only certainty -- that there will be lack of certainty. It is not the time to turn your back for too long on Mr. Market. Nor is it time, unfortunately, to rely heavily on fundamentals and technicals and to invest, as Wharton's Dr. Jeremy Siegel would suggest, for the long term.
On the technical side, I can say with confidence that the unique volatility will, to some degree, upend our abilities to read and interpret the charts (which only tell us where stock prices have been, not where they are going). For now, even my beloved fundamentals will also take a back seat to uncertainty -- political, economic and otherwise (e.g., Italy), some of which is outside our control -- and the dominance of Washington policy in determining share prices. The latter has had a salutary impact on equities but has obscured natural price discovery in stocks and bonds for some time.
It is time for those who are facile to become emotionless in the trading process. It is the time to buy red and sell green, to buy the dips and sell the rips.
But it is also a time to err on the side of conservatism in our trading as the backdrop becomes more of a random walk than ever.
It is a setting within which, stated simply (and being truthful), we don't control our own destiny.
Again, the market lacks predictability or trend.
If your time frame is a few months, my advice is to stay flexible and opportunistic. If you are trading, trade small.
If your time frame is a few years, my advice is to buy weakness. Even then, keep your investment positions smaller than usual.
It is especially important to be emotionless, balanced and opportunistic in the market that has no memory from day to day.
There are numerous talking heads that seem so glib and talk/advise with absolute certainty -- I won't name names; you know them as they are often making appearances in the business media or are literally in the clouds of the investment blogosphere -- but the certainty they project is preposterous and dishonest, as the only thing to be certain of is a lack of certainty.