Don’t be hasty

1. Xivvie has prone true to form and is up about 400% since I sold my entire position at around $8 last year, proving once again stop losses are the devil’s work and have no place in anyone’s strategy. Whoops.

XIV 1 year

On the flipside, the world has proven remarkably good at knocking down risk markets, so there’ll almost certainly be another chance to pile back in, though if we have a few years like 2003-2006 (likely) I’ll probably have to watch one of my favourite plays quadruple again from the sidelines.

Typically the lack of market volatility over the past year is the exact opposite of what (dare I say) everyone was predicting a year ago. Even lil Kim hasn’t been able to shake things around. The commentators gleefully stating that the Korean markets are at ‘four month lows’ completely miss the point: big picture there’s barely been a ripple.

10 year KOSPI

(Kospi, Korea’s market index)

Fortunately, having watching XIV and it’s ETF cousins for some time now (of particular interest ZIV – it’s like a smoother version using futures further down the curve that inherently jump around less than the front end) and actually read their legal docs, at least I now have a firm strategy and some level of confidence to put on a position that, in my weak defence, I just didn’t have this time last year.

2. While I’d prefer it didn’t, that sort of opportunity may come relatively soon. There’s hints of the now-typical mid year slow-down in the US, Eurozone statistics are somehow managing to worsen, and there are signs wherever you look that market exposure is at extremes. This all suggests the annual Sell in May and Go Away collapse might happen once again, for what must be something like the fourth year in a row now.

Eurozone unemployment:

Eurozone unemployment 2013

3. Meanwhile the broad road-map has been playing out according to plan. The Eurozone hasn’t collapsed as the pundits predicted, and it will take far more than economic statistics to shake it now. Meanwhile the shale story played out more or less as expected, and while this hasn’t resulted in the fall in crude I was expecting, I think downward pressure is a relatively safe bet over the next few years.

Pressure on commodity prices will likely be the theme of the next couple of years, and you don’t need to be an expert to guess what impact the wave of supply will have on commodities like iron ore.

The second and third order impacts are harder and more interesting to ascertain. Most likely prices will stay low (as will inflation statistics) and those who need cheap fuel and cheap raw materials will benefit. Perhaps steel makers will finally have their time in the sun, and some of the pressure on airlines, shipping and transport companies will be alleviated.

4. To be honest though, considering the run so far, to be long in this market is not a clever move. Better to be patient and wait for a real opportunity. If you were set at much lower levels last year, or better yet, at any point in the four years preceding, that’s a different story, but this bandwagon is not for jumping.

Enough with the boring recap.

Next post: Anarchy and Bubblecrap

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