Still too much confidence

Still too much confidence
By: Hans Lysglimt

Markets fell hard yesterday, they are up today, there is still too much confidence out there. The con men on Wall Street have been given some time to catch their breath and come up with new conning number schemes. The bull market, and the new cons build confidence on each other. Confidence that is unjustified and that will be shaken out eventually. Observing this irrational bear market rally go through 10-20-30%, we not think it might go even further. Remember that most long investors are now up 20-30% from the bottom, they are breathing a sign of relief. They are telling themselves “phew – that was a close bullet, but I dodged it because I am so smart so and so…”. When markets will fall hard back, they will feel the pain back, take to reason, or outright panic, and sell. So when the markets eventually fall back 10% they will fall another 10-30% fast, good and hard. Calling the turning point this time will be hard, we are still waiting.
Your safe bet would be very long put options, but they are expensive – as they should be. Keep looking though.

The dramatic fall yesterday tells us that the confidence is veneer thin, it scratches off easily.

Hans Lysglimt
Oslo, Norway
April 21. 2009

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