Got engaged in some follow-up on the Jamie Dimon post I made last night both in and off the comments section with those seeking additional explanation. So thought I would elaborate both to clear up any confusion as well as to allow an opportunity to post this neat video I found a few months ago when Obama addressed some union convention and I thought it was time to revisit some US labor history and a movement — which has become marginal and powerless in recent decades — but now seems likely to gain traction in years to come.

A few people focused on my comment regarding an unidentified "hedge fund analyst" and that was not really the point. I talk to lots of people and was not at all trying to imply this person is all-knowing, or providing justification to go massively long in the expectation Jamie might get appointed and we would then see a surge. Second, the reason I did not ask him for follow-up/explanation was we did this by e-mail and did not get to talk. Basically I was looking for his take on this thesis as a reality check for my own views, figuring if he shared them we could then talk about implications and how to apply it. Frankly after getting his reaction I thought particularly as it was after hours it might be interesting to post idea here as an experiment to do some further due diligence and see what people thought.

Anyway, the reasoning why there might be surge is that Dimon is one of Wall Street's own and the financial community is likely to embrace him as it means at least for foreseeable future there will be someone who sees things from the same perspective and whatever the rhetoric, etc. things will be handled in a "friendly" manner. 

That has many negative implications for sure and is why I personally don't think it is positive myself — but contrast that for example as to what would happen to the market if a Volcker or Stiglitz got appointed (highly unlikely as we know) and there was a belief that rationality would be interjected into the system as well as a viewpoint that was less sympathetic to the financial services industry and perish the thought — shifting back to the real economy and the workers and others with real jobs making real things — (this is where you play the video if you haven't already).

A long term move away from a "lets give everything and more to the banks" (and hints of shifting sentiment in that direction is beginning to emerge in DC and the media and has to be feared by those benefitting from current system) at least in my view would be a positive but in the short term it means the party is over no? But most people and Wall Street in particular doesn't think long term so WTF!

steveo77 whose comments made me decide to post this elaboration basically answered his own question as to why a Dimon appointment might be market positive, noting – "the blatant "double speak" seems completely in keeping with the current governmental tactics ….. that we could use Geitner for a scapegoat…and then pretend that we solved the problems of the past (NOT)."

Dimon is perceived as a rock star and winner in the current shakeup. Look at the bureaucrat chart Tim posted other day. With Jamie at the helm, Kudlow and others can say with straight face "out with the bureaucrats and in with a real no-nonsense banker dude who knows how to handle this mess and clean it up". Whether or not there is any truth to this is irrelevant but on the surface it has logic and can be used to hopefully build confidence and lure in more worried money. 

Then we can get on with what steveo77 termed a "continuation of old school corruption and thus likely more money printing, driving USD down, and equities up."

Not going to resolve things but puts out immediate fire, provides hope and should allow for positive performance in 2010 or at least through first half and then we can come up with something else.

I could be missing something and totally wrong about this but do think this is the type of thinking that has to be going on in DC and that at least was the thinking behind original post and why I posted it here. 

By most measures and indicators the upward move of the past few months is getting a bit tired prompting many to start exercising caution and others to start piling on shorts both as insurance and as a means to profit from either the "healthy market-positive pullback" or "second-phase tsunami down" that is sure to come. I am no exception and have been putting on some of the leveraged contra – ETF's we are all coming to know and love as both insurance against my longs and as a start upon which to build should we start moving down — even though as noted in my last post I am a bit ambivalent on this strategy.

At the same time the market seems to be resisting the common wisdom that one needs to wait for the next correction to start adding to exposure and appears to want to go higher. That sentiment could turn on a dime though one has to believe if you are in the bubble business — you are not just going to fall down and let the markets undo all the huffing and puffing up we have seen since March.  At the same time any intelligent bubble-maker understands they can't simply will the market up and down for more than a brief period and intervention — monetary or otherwise — is only likely to sustain itself if it builds on an underlying trend.

So if one believes this move is getting tired, and will not be sustained by still-weak fundamentals then the question arises as to what can be done to counter a gradual erosion of sentiment that leads to either ala TK "grinding-move" down or even more troubling swan dive as we saw in 2008 and first few months of this year.

A new stimulus program is always a possibility though that requires political cooperation which is not so easy to obtain these days. It also leads to more debt, etc., which likely translates into dollar erosion, higher gold and commodities and other problems.  While that may end up happening in any case this is not likely to have quite as much bang for the buck the second time around leading to a reluctance to move in this direction therefore raising the importance of other options?

One interesting rumor in recent weeks is the potential for a new Treasury Secretary a development that has gained additional momentum since a Republican Congressman called for Timothy Geithner's resignation before the Joint Economic Committee and he gave what has been termed a "testy" response.  In the last day or two there have been additional conjecture a prime candidate to replace him will be Jamie Dimon, a Democratic contributor who knows Obama from his Chicago-based Bank One days. Here is a story from yesterdays New York Post about this possibility: 

I posed the question earlier today to the Head of Research for one Hedge fund, forwarding him the Post article and asking: "if this is true — and it does make some sense — despite the fact at least in my view it is a bad idea — the markets rocket when he is chosen no? is that the catalyst for next leg up?

The answer was "It would indeed send the markets up the next level in this new bubble".  

Obviously this is just an opinion and we have no idea of knowing whether this will come to pass. Would be interested however in hearing thoughts here as to the odds and timing of a move like this, what would result should it happen, any alternative scenarios, and thoughts on how to play this trade.

(In case anyone ever thinks the only posts on Slope are fawning ones, here is proof of quite the opposite – – Tim)

I did very well in the resource run-up of early 2000s and over time became fully invested in mostly jr. resource and emerging market/international plays. This ultimately proved disastrous when the meltdown commenced in 2007 or so. 

Having been through downdrafts before the best strategy had always proved itself to be just wait it out and come out stronger given the strong underlying fundamentals. That is the way I decided to play it and as a result watched many of my faves — which had risen 10x or more — tumble over time and in at least in one case the residual remainder of the position went back below original purchase. 

Figuring I needed to do something to prevent more profit erosion — as for some reason could not seem to hold shorts for longer than two minutes — I decided to broaden my horizons and sought out new views such as SOH here.  While I was largely too late to take advantage of that magnificent Bear party, it has made me a better trade and investor and given me a broader perspective than what I had before.

At the same time now that I have again become all wise and knowing 🙂 have to say that continuing to follow this place has cost me money.  I am a big boy and recognize it is how I deal with the info. Also do believe we will have another rip-roaring bear party at some point — but the key point is that time is not today and to keep staring in disbelief and piling on the shorts at the slightest sign of weakness in the hopes of calling the top has at least over the last few months been a very costly strategy. 

One of the smarter investor's I know came out with a statement a few months ago which I found very intriguing and helpful.  Basically he noted people tend to trade and invest the way they wish they had traded, or which brought them success during the last cycle.  

His point was there were an awful lot of people who had been trained to just grin and bear it and hold on to positions given belief "stocks always outperform in long term" who would now cry out "never again" and start throwing things overboard wholesale at the slightest sign of weakness.  In his view that was justification the real correction would not come for some time to come.

That has not been an easy strategy to follow — particularly if one is a regular SOH reader 🙂 but it has at least since March been the correct one. 

What's the point? Basically as the headline says, the Trend if your Friend …. Until it Isn't. While one can and should hedge a bit as Grandma said "a watched pot never boils" and "all good things will come with time" so there is no reason to rush in until the reversal becomes clearer.

Another professional money manager I know who makes many here look like optimists turned positive awhile ago given his belief "the market wants to turn higher" and believes it will not turn back until we start seeing the same blow-off moves to the upside that we saw to the downside last year.  

Incidentally that same person has not really benefited from this call.  He also has become a periodic SOH reader and a few weeks ago after reading a Tim "there is more to the upside post" remarked "That guy is as screwed up as me.  He knows as I do we are going up but can't act on it or at least get out of the way and let this phase pass".

It is really easy to get overwhelmed by volatility in both directions and to extrapolate trends on one or two or three days action and then be tempted to put on and take off positions and always be "doing something" based on what is essentially noise. Guess in a way that is what day- or short-term trading is all about. I am as guilty of that as anyone else and suppose it is a matter of style.  While I do enjoy watching the story when I look at the accounts I trade every day against the ones I rarely look at — not sure which is the correct strategy especially given the time I spend on the active ones — but anyone here probably has to at least question whether they are a bit too close to ground zero at times and take a step away.

Before wrapping up this meandering have to admit to having prepared a similar post when Tim started with these guest posts. This was just as we seemed to be reversing and even the two people noted above had begun to question the sustainability of the move  – and I decided not to go with it as I again began to engage in self-doubt and thought it would appear foolish.  Of course while I understand the futility of too much coulda shoulda — as I was letting myself get stopped out of positions and again focusing on which inverse ETF would serve as the best hedge and profit generator during the tsunami down that was sure to come — and which did in fact turn out to be profitable trades — it turns out I was missing the chance to position for the next rise.

Oh well, at least I was not mega-short.  Nothing stated above is any guarantee that today is the day markets to not become in the words of Mr. TK "finally become rational" (though what rational is god only knows).  Life and the market are not easy.  That is probably the only thing we can say for certain.