This is a dangerous time, the start of the serious unwinding of the Bernanke-Powell Artificial Economic Experiment. It may take a year or two to clean out this mess. While many are viewing it as a time to be Bearish, I would tend to characterize it as more a time for chaotic rallys and crashes. Probably the safest thing might would be to buy 2 year bonds and hold to maturity, to a time when things may be more stable.
But if one wants to play now, keep these factors in mind:
- Money is not free anymore but historically it is cheap.
- Both stocks and bonds are expensive and in a bubble, but
- the talk of Fed blinking is nonsense , the Fed has not done anything yet and what they are doing is well below levels needed to stop inflation,
- Funny Money is still everywhere
- Junk Bonds vs Treasury Bond prices show there is no fear.
- Curve steepening suggests the bond vigilantes are done for now.
With all that in mind, I am planning to dust off my buying shoes and be a buyer in the lower parts of the trading ranges we have seen this week. I will not be using stops as I will be trying to buy the bottom, looking for a first stage chaotic rally, and will control risk by only putting a portion of the position on at these levels, probably a third of it, with the plan to have it all on before SPX tops 4620 again. I view this an inflation-based rally, maybe a three to five month trade that will force the FED to get serious.