Saturday, September 5, 2009

Moving toward market neutral position

I have been slowly moving my stock position to "market neutral". The events in the economy today reinforced my "market neutral" decision as the dismal jobs report sent the S & P index up 1.3%. The Herd is feasting off the greed created by the 50% rally in the stock market. I will take this opportunity to hedge my position and move away from the The Herd once again. Today I only took 40% of the 1.3% move upward in the S & P index. Friday I purchased more inverse EFTs and will probably only take 15% of any S and P profits on Tuesday if the market heads North.

I still am not able to see any green shoots in the economy. The unemployment numbers on Friday were dismal. It would have been much worse except that many of the unemployed are starting their own businesses. This helps the unemployment numbers but I would suggest that most of these businesses will not be profitable for at least a few years and many will fail. Also, the part time work force is increasing and except for minimum wage jobs, hourly salaries are going down. Many private employers are still planning layoffs in the near future. The only sector where salaries are increasing is the government sector. Presently 20% of household income is generated by our government.

Because of the trillions of dollars of stimulus by our government we will come out of the recession in the next few months. This will be only temporary. I can not see any situation where we will not go into recession again in a year or two. We have endured 2 years of financial pain and have not made headway on the cause of the financial crisis. Our society is deeply, deeply in debt. We presently have more debt in relation to GDP than any time in our country's history, this includes the time during the Great Depression. In 2008 our country's households were in horrible debt and I suggested that because our society has such a repugnance to saving that a recession would be the only cure for our debt obsession. Well I never would have guessed but after the biggest recession since the Great Depression our households are in more debt than in 2008 in relation to net worth. What's worse is that our government is pushing households to increase their debt even more. For the last 20 years our country has become a debt junky and our government has become our dealer and our enabler. The debt is not the desease. The debt is a symptom. The cancer that has infected our economy is speculation. I use the term speculation as the antithesis of saving. The tragedy is that our financial elite are absolutely clueless as to the symptom or the desease. No one saw any problem with the system in 2007 during the biggest asset and credit bubble in history. I was so upset by this denile, "by everyone", that I decided to become a renter for the first time in my adult life and took out a large short in the stock market to protect my two biggest assets.

I had hope in 2007 that in a couple of years, after a clensing recession that things would look better. Unfortunately they are worse. Until someone in the financial elite suggests that our country stop borrowing, stop bailing out speculators and start saving we are in for a bumpy road.

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