Help, My Son Likes School – Hestitant Skeptics

There are events in life that arise to challenge the skeptic in us, ever quite frequently, if we look hard enough.

It is like my realisation that my son likes going to school these days that raised alarm bells in me recently. No, it is not a girl or a boy… It’s just that his school is good fun.

Brought up in the rigorous education system of Singapore, my entrenched mindset is that NO ONE LIKES SCHOOL. Come on, who enjoys all that homework and endless days and nights of cramming ? If you like school, the teachers are not doing their jobs.

I guess stranger things have happened and you cannot give up on things in life such as my sweet potato venture, which was a flop after all the back breaking work last year. I ditched the plants in the front yard last December, harvesting the leaves every fortnight, and hoping they would go away.

Voila. What did I find by accident today ?

sweet potatoes

Events that arise to challenge our skepticism of the markets – the relentless rally in credits, gravity defying stocks, forex markets, Abenomics, China’s shadow banking, real estate and other problems, and the list goes on.

So far, it has come up to nought which is why volatility has all but collapsed and the market has turned skeptic on the idea of crises.

In other words, markets have given up on the sweet potato story much like I did. We just trudge along to the beat of the rest in the new neutral and I was right that the S&P is on its way to break its high, the skeptic in me buried in a deep and dark place.

I had 2 friends talk about the VIX again last week. It is at a 12 month low and its correlation with the S&P 500 Index is at near perfect -0.90 (-1 is perfect) and to my surprise, beating the VIX’s correlation with the double leverage short term VIX ETF by a small margin.

They are keen to long VIX because of its absolute lows but they are not keen to short the S&P ? Oxymoronic ?

Like them, I am hestitant about being skeptical these days like Mauldin says, we have a Bubble In Complacency. The macro picture is pretty useless in the current investment climate and bringing in sociopolitical issues will only distract us from the fact that we are only halfway through the rally, just over 600 days since a 10% correction as compared to the last rally of 1,153 days between Mar 03 to Oct 07 and the longest rally of 1,767 days between Oct 90-97.

When we have a long and sustained rally, corrections will not happen overnight or immediately.  Remember the trading psychology graph ?

emotion tradingAnd this one ?

trading psychology

And because everyone is waiting for a crash to buy, the markets cannot crash.

It is only when everyone is waiting for a rally to sell that corrections will happen.

As I write, Nikkei has broken out of its downtrend, USDJPY is breaking higher, Ukrainian bonds are having their best month in 4 years and even Russia’s Micex has rallied for 3 days.

There is no panic, only calm and a bunch of hestitant skeptics on the side.