After climbing out of the basement last week, Team Tepper is focused on taking targeted risks to catch the Chicago Bears. Looking at the impressive returns of the Booth team, we see that they are clearly net short, which has paid off so far. Ohio State seems to be adopting a similar strategy. We do not have a great deal of confidence about the direction of the markets with all these Seinfeldian rallies and retreats about nothing.
Exhibit A is the 4% S&P 500 swing from negative to positive in the last hour of trading on Tuesday. Despite the lack of substantial good news, this market does not feel like the bear market of 2008. Non-farm payrolls increased by 103,000 today and the unemployment rate held steady at 9.1%. The ISM's manufacturing index came in at 51.6, ahead of the 50.5 consensus estimate indicating that the economy is still growing, albeit slowly. Weekly jobless claims have been registering right around the psychologically satisfying 400,000 level. The European sovereign debt situation is the shadow lurking over everything. If markets moved by 5% in one-day (either direction), it would catch no one by surprise.
Markets with a lot of headline risk, high volatility, and high correlation make stock picking difficult. Is the solution a strategy that involves reacting to the short-term trends and blindly following where the markets lead us? Perhaps lemmings are wiser creatures than bulls and bears.
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