“If Everyone is Thinking Alike, Then Somebody Isn’t Thinking”
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Matthew Buckley Check6-llc.com |
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In today’s market, I frequently refer to this quote by General George S. Patton. You don’t rise to a 4-star rank by being a ‘yes man’ or surrounding yourself with what we used to call “Hinges.” These were officers who apparently went to the base hospital for a special surgery when they made mid-level rank. The surgery involved installing a hinge on the back of their neck so every time their commanding officer made a comment, their head would instinctively begin to move up and down. “Yes sir, great idea sir.”
Occasionally we would recommend these new mid-level officers apply some WD40 to stop the squeaking. The market continues to roar higher, fueled by small pieces of financial tinder. Alcoa (AA) reported better than expected earnings last week, partly due to cost cutting efforts. Cost cutting can only get a company so far before it starts to hit bone. At some point, the market is actually going to expect companies to make money…shocking, but true. Alcoa is currently trading where it was a year ago, pre-financial tsunami, with revenues down over 70%. I’m no rocket surgeon, but that doesn’t make too much sense to me. But then again, a lot going on in this market isn’t making sense.
Speaking of rocket surgery, an understanding of financial physics says stocks and the markets tend to revert back to their mean over time. But when applying regular physics, we know that a body in motion tends to stay in motion until acted upon by some outside force. Folks, this market is a body in motion and investors are getting sucked into the wake (see: hydrodynamics; also Ventrui effect).
The more the market goes up, the more people want to and do get in. But beware of the packed movie theatre. At the first cry of “Fire!” it could get ugly as people race to the door. In the past couple of weeks we’ve smelled some smoke, but people shrug and continue to pack in.
Don’t get me wrong; I’m trading this market like you read about in “I’m Trading This Market” magazine. But don’t think for a minute that am I not hedged or in a position where I have a straight line to the door. And like George Costanza, I have no problem mowing people down as I break for the door when the fire really ignites.
Eventually the government will pull back their support beams and unemployment is sure to hit 10%. Gold and the dollar are locked in a spirited battle as Uncle Inflation decides whether or not to creep us out with a visit. The consumer faces an uncertain housing and employment picture with the holidays fast approaching, not to mention that there are still people sitting in caves plotting the best ways to kill as many of us as they can. Other than that Mrs. Lincoln, how was the play?
I’m not a bull or a bear right now; I’m sitting on an E-3 AWACs aircraft gathering as much intelligence and using it to make targeted strikes. I think commercial real estate is smoldering and have several bearish options positions on. I’m employing iron condors on several sectors I feel will move sideways for the near future, along with solo credit spreads. The VIX is coming in a little, but I’m not buying the head fake and will continue to sell volatility.
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Make sure you hedge, and happy hunting!
Matthew "Whiz" Buckley is the Managing Partner of Check6 LLC, a business-consulting firm specializing in leadership development, risk management, and strategic planning for Fortune 500 companies and related organizations. Whiz flew the F/A-18 Hornet for the U.S. Navy. He's a graduate of TOPGUN, has close to 400 carrier landings, and flew 44 combat sorties over Iraq. He transitioned to the business world after he was scheduled to fly his first flight as an airline pilot on 9/11. Instead, he ended up flying combat air patrol over the U.S. He rose rapidly though corporate America, starting as Managing Director of Strategy at PEAK6 Investments, to CEO of the Options News Network. He is an internationally recognized speaker and combined his unprecedented experiences in the military and corporate America in the writing of From Sea Level to C Level. You can follow Whiz on Twitter.