One of my biggest weaknesses is always assuming that trading is “never obvious.” Too often I find myself overthinking trades, trying to outsmart the crowd, but in the mean time just throwing money out the window.
I wish I could simply climb aboard dumb trades like buying Apple because of a stock split, but it is not in my DNA. I consider it a win when something plainly obvious like buying stock splits works in spades, and I have avoided being short. Not losing money is the best I can hope for…
So far I have avoided shorting Apple, even though the stock split strategy seems to be working even better than the bulls would have ever hoped.
AAPL – Trading 101</a> </div>
I am nervous about the ease in which the bulls are making money. This sort of euphoria regarding a stock split is eerily reminiscent of other dangerous points in the market. In fact, over the last few decades Apple itself has split its stock 3 times. Have a look at the timing of Apple’s stock splits versus the market:
S&P 500 with Apple Stocks splits highlighted</a> </div>
As Meatloaf counselled, “Two out of three ain’t bad.” Twice the split in Apple’s stock coincided with a major market peak. Of course, this time is different…
Volatility hits new lows
I have written about how volatility is hitting new lows in all assets classes, and to track this phenomenon, I created my own index that is a mix of the VIX, MOVE and G7 volatility index. This home grown index tracks the implied volatilities of stocks indexes, government bond markets and the G7 currencies.
It has once again hit new lows:
K-Vol Index (Stocks, bonds and FX home-made vol index)</a> </div>
I fully concede that using the low volatility as a forecasting tool is extremely difficult. In 2006/7 the low volatility continued for quite some time before the shit eventually hit the fan.
But make no mistake – this is not a good development. Markets love to climb a wall of worry. Think about the level that investors are willing to pay for protection as the height of this wall. When the wall is this small, it is time to be on the look out for the top.
Be very careful for pundits that deride anyone who isn’t bullish. This is the final stage of the bull market. Full acceptance and open mockery of those who are bearish is the ultimate top signal. The Market Gods love to make fools of those who are the most confident.
What if everyone is wrong about debt levels?
I am going to write about this more extensively in the future, but I am tossing around a new theory of mine regarding debt levels.
Many Canada bears love to point to Canada’s consumer debt levels and say that this trend is not sustainable. And I agree… mostly….
But what if the high debt levels of Canada, UK and Australia are not destined to crash any time soon? What if the surprise is going to be how there is no consumer debt crash in these countries?
The devastating experience in the US during the 2007/8 credit crisis has led many market analysts to conclude that the same fate is in store for Canada, UK and Australia.
What if they have it backwards? What if instead of these three countries experiencing a massive de-leveraging, the US actually joins them in their asinine debt orgy?
Since the credit crisis, Americans have been very reluctant to take on debt. They rightfully are scared of the consequences.
It has taken a while, but that fear is slowly fading. Have a look at the latest consumer credit growth:
Credit growth has dramatically picked up and is now expanding at the fastest rate since the crisis.
What if this is simply the start of this trend?
Everyone is betting on the credit crisis of 2007/8 returning in vengeance to Canada, UK and Australia.
What if the surprise is that instead of consumer debt levels in these three countries crashing lower, the contrast versus US debt levels is brought into line by a massive increase in debt by Americans?
Right now no one can imagine the US economy booming and consumers actually having confidence, but markets often surprise in funny ways…