May 10, 2011

What Markets Look Like from a Week Away

Maybe we should leave more often. Out just one week, and both silver and Osama Bin Laden’s house go on the auction block.

Sunday night after flying back from Antigua by way of Newark, I reviewed a week’s worth of client stock alerts for perspective. Stepping through a side exit and closing the door on life’s cacophony for a week, time stops. The return, the jolt of the madding crowd, is revealing. It’s amazing what you see.

More in a moment, but I promised some of you I’d share what we saw beyond the Truman Show. Apparently you can’t get from Denver to the French West Indies in a day on one airline, so we overnighted in Newark, touched down in Antigua, caught Eric Air, a fast little twin engine Cessna with a sharp-witted French pilot (Eric) and alighted in Guadeloupe.

Home for a week was a 70-foot catamaran. Our back yard stretched from Petite-Terre to Iles de Saintes, a coral-reefed shot of paradise where I put on scuba gear for the first time. By the looks on our faces off Marie Galante (where I needed a shave), you know we were on the Sea of Tranquility.

Speaking of needing a shave, that’s how the data looked when it slammed me out of the islands upon return. Careening commodities. Whole swaths of clients up and down 2-3% in waves over days. Chunks of erroneous trades, especially in health care stocks. Trend traders and programs for models and funds reversing course May 2 after the VIX euphoria that began April 20.

Seeing it at once was somewhat stunning. Does it mean anything, or is it simply more jarring en masse – like seeing your face after not shaving for a week, in my case? It’s a bit of both. Markets aren’t about to collapse by any means, but these rocking currents, sloshing white caps evident upon farther inspection, are what happens when prices become uncertain.

It may mean nothing ultimately. But a year ago, April 22-27 to be precise, we were telling clients how program traders had suddenly turned fearful. They furled sails and battened hatches with hedges (prices don’t drop then, they…coast). And they were right, as May 6, 2010 showed.

Having reviewed a chunk of data now post Guadeloupe, we see a disconnect forming between enthusiastic investors and cautious risk managers. It’s a buoy in the water for the wise that says there are shoals.

We’re just observers of data. We expect investors will navigate through the reef. But food for thought: Both economically and geographically, Greece is no island. If the Euro skids aground there, it’ll run the dollar up the mast. Stocks are a weight going the other way.

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