In general we view the markets with considerable equanimity. Like Andy Schleck fleeing from the pelonton we are “not afraid to lose”. And in general not afraid of what the markets can do to us.
But surveying the fundamental situation this weekend we are in some disquiet about the state of negotiations in Washington. 5:00 pm Eastern time and there is no sign of any compromise on the debt limit — and evidently not much overt anxiety about it — except on the part of Geithner and every investor who has a portfolio at risk in the market.
We would not be surprised to see extreme downside volatility tomorrow. We feel sandbagged here –as the markets have given every indication that the fix was in and that a deal was hiding in the wings. But the news has been an unending tease — deal on, deal off, deal any minute. We closed our hedge on one of the deal on reports. If anything is left tomorrow we will put it back on till August 3. Gold, Silver, VXX, SPXU (Short S&P), DXD (leveraged shot Dow), QID (leveraged short Qs).
Remember stops should be stop close only, because the market may pull a flash crash move. In the long run we think a buying opportunity will be created, but there may be some pain for existing portfolios.
We have been advising caution and hedging for weeks. The fuse is burning. The politicians are fiddling. Rome may be on fire tomorrow.