The Market is ALWAYS Right!

If you ever hear a Money Manager say the following, ask him for your money back immediately –

“The market is wrong”

The market is NEVER wrong. EVER!

After a great deal of studying, I determined that there was a high probability that money would again flow into the inflation/leverage trades in the very near future. I figured that the driver would be a successful cash settlement of the Lehman CDS holdings at banks.

Well, Lehman CDS settled without a hitch and what happened? The Dow sold off 400 points in the first 30 minutes of trading this morning. The market is always right, so I took defensive action.

Last week I started to take small positions in front of the Lehman CDS settlement. Here is what I bought and what I paid (average) –

5% Natural Gas (UNG) $30.50 limit
5% Euro (FXE) $133.50 limit
5% Russia (RSX) $16.10 limit
5% Gold (GGN) stop buy at $11.50 never triggered
5% Swiss Franc (FXF) stop buy at $88.5, then $86.8 never triggered

Here are my stop loss limits -

UNG stop loss $30 triggered today
FXE stop loss $128.25 not triggered yet
RSX stop loss $14.55 not triggered yet

I cancelled all buy orders on GGN and FXF.

So the likely maximum I will lose on these trades is a whopping 0.755% for clients.
I think it was worth the risk to try and make a BIG gain.

The bottom line is this – IT IS OKAY TO BE WRONG, BUT IT IS NOT OKAY TO STAY WRONG!!!!

With the Bearish action today, I went short a mix of the following for clients and myself –

Financials (SKF)
Emerging Markets (EEV)
Materials (SMN)

I may end up covering my short positions as early as tomorrow morning.