As most of know, my hedge fund is able to be in cash and wait for the “appropriate” opportunity to deploy capital. So far for the last few weeks, this has been the case.
Since 2013, this has happened about 5 times, and two of them lasting more than 6 weeks. On the other hand, this time is unique because the last few weeks the SP500 had one of the fastest up moves in its history. Being in cash while most investors are “losing” money provides positive reinforcement. On the contrary, not taking advantage of the last market appreciation and having trusted models tell me to be in cash or even short this market is something that traditional money managers just cannot do, nor understand.
I am confident that my model is far better than most humans in judging risk-reward and I am a believer than patience with risk management are the most valuable attributes experience traders can bring to the most market situations.
The Central Banks from around the world at giving enough comfort to the markets that traders and money managers are developing scenarios where it is hard to see the market trading much lower.
Here I share a third party scenario that is valuable to study and scrutinize
- If the economy becomes strong, stocks will win.
- If there is a vaccine or antiviral, stocks will win.
- If the virus resurges, there is no vaccine and there is no antiviral, stocks will win because of more money printing and more borrowing.
- If the economy is weak, the stocks will win because of more borrowing and money printing.
Of course, not all outcomes will point to the same results.
