This "Coin Flip" Market Could Go Either Way

Douglas Kass TheStreet July 18, 2011

This blog post originally appeared on RealMoney Silver on July 18 at 8:20 a.m. EDT.

Most traders and hedge fund managers today feel the frustration of the tail that wags the dog in an unpredictable investment backdrop (which has no memory from day to day) and are dependent on a plethora of important and rapidly changing macroeconomic hurricanes. As an example, this morning market participants face the following macroeconomic worries (hat tip to Bill King): Goldman Sachs reduced its second-half 2011 GDP growth expectations The validity of the European stress test has been questioned. Some German officials are balking at the Greek bailout plan. More political partisanship has been on display and little progress has been made on the U.S. budget ceiling discussions. A weekend Wall Street Journal report states that the European stress test did not include loans to businesses and consumers in southern Europe. Fundamentals Be Damned Today, our journey for better investment returns is growing extremely difficult given the changing, unpredictable macro events and importance of the political circus (and its headlines) as well as the disproportionate role of momentum-based market strategies and the algorithmic response to the short-term movement in share prices that the headlines catalyze. Mr. Market's bearings have been lost in inconsistent, lumpy and random prices, in which macroeconomic judgments, technical analysis and guesswork are replacing hard-hitting fundamental company analysis (the microeconomic). The marketplace has almost become a random walk. As an example, Bill Fleckenstein succinctly describes "the overriding game theory at present relating to the Washington, D.C., circus": Debt ceiling debate matters and is resolved one way or another: It gets raised, stocks knee-jerk rally, bonds tank as the slosh ebbs and flows. Or maybe the reverse happens. Debt ceiling does not get raised on time, stocks tank, bonds rally, dollar goes nuts in some fashion, or maybe everything tanks. While all the debt ceiling hype churns around, jerking players back and forth, Europe implodes and various parts of the "circus" go nuts in assorted directions. Easy peasy, right? Strange Brew Now that the way to play has become so clearly defined (!), market participants party on (with other peoples' money) -- surprisingly, only a couple of percentage points below 2011 (and 2009-2011) highs -- despite the ambiguity of both the economic and the political messages. Go Figure Maybe the market will solidify and advance following the current confusion, or maybe most investors should simply pick up their toys and take them home. Quite frankly, it could go either way -- it's a flip of the coin. Doug Kass writes daily for RealMoney Silver, a premium bundle service from TheStreet.com. For a free trial to RealMoney Silver and exclusive access to Mr. Kass's daily trading diary, please click here.>To order reprints of this article, click here: Reprints Add Comment Tweet Doug Kass is the president of Seabreeze Partners Management Inc. Under no circumstances does this information represent a recommendation to buy, sell or hold any security. adsonar_placementId=1341527;adsonar_pid=879768;adsonar_ps=-1;adsonar_zw=600;adsonar_zh=280;adsonar_jv='ads.adsonar.com'; /* only load jQuery if not present */ if(typeof jQuery == 'undefined') { document.write(""); var __noconflict = true; } try { function DM_onSegsAvailable(segs, cust_id) { for (var i=0;i li'); menuPopup.bind('mouseover', popup_open); menuPopup.bind('mouseout', popup_timer); }catch(e){} }); document.onclick = popup_close; #premServ #popup li a, #premServ #popup li ul li a { color: #EAFFED !important; }

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The U.S. Manufacturing Myth: Why China's Rattled!

China is losing its edge. It's now cheaper to make something in Baltimore than Beijing. U.S. manufacturing is surging back! A top analyst at TheStreet has identified a small company at the epicenter of this long-term megatrend. Get its name in our free report called, "The Little- known Industrial Stock With Huge Upside Potential."

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