We are all accustomed to that unholy feeling of vertigo that happens when we are squeezed and squeezed on a position going against us. But usually it's in a currency or commodity market where prices seem to go against you until you are forced to cave just when the turning point occurs. This is not truly a random effect or a hateful aspect of market misogyny. Rather it is usually the knowledge that your brokers have as to how far it can go against before they can force you out and take the opposite side of your positions.

What we are much more unaccustomed to is a continuous rise and setting of new highs in stocks. We haven't seen such a thing since the 90s and the trillions of opportunity cost losses by delta neutral and long short people have about been used up by those who follow the views of optimists such as Gavekal.

But now there is a new modality, the consistent, persistent unalloyed new high after new high. Certainly if the market is going to go up 20% a year as it does in such times as these, when the earnings yields so much higher than the bond yields, there will be many such periods of continuous horrible shorts rises. The question is, how can they learn to survive? How can they cut their losses before the last short fund is closed down again as it was in 1999?

The book The Science Of Disasters, by Bunde, is a series of papers by chronic pessimists of the garage that the Expert was stored in for 15 years. And it consists mainly of non-predictive studies of impending disasters that somehow fractal analysis provides an interesting graphical backdrop for. It is mixed with a smattering of mathematics from the particular authors' home base, be it physics, pure math, or geology, and it's completely useless for helping the shorts in this dilemma.

One overriding question is how have the extraordinarily liberal and extraordinarily conservative anti groups and funds have been able to react to such unequaling rises. They don't believe in the grand sweep of entrepreneurial activity of the function of markets in providing a mechanism for the masses to participate in human creativity and free trade. And presumably they are long shorted in grinded to death positions that have no hope of ever making more than the risk-free returns.

I think of the University I attended whose main contribution to the structure of ideas on investments is acceptance of the liberally mystical idea of Buffet, Soros and the Expert, that risk is so cheap that the grand thing to do is to buy forests and hedge against the Grossian-predicted Dow 5000, and wonder how long they and their ilk can bamboozle the assembled ever-skeptical public.

From Kim Zussman: 

One way to frame this is in relation to worries of participants driving price. The transcendence of the 2/27 decline has been quick and sure, seemingly surprising bulls and bears. Current worry drivers:

"The higher it goes, the more likely a future decline"

This worry keeps out reversalist longs waiting for a decline entry, which they grow to regret as gains continue. Little by little reversalists join the fray out of fear of missing the party.

"The higher it goes, the less shorts can survive"

How many shorts have closed worried about further losses, and how many still hold but worry there won't be another 2/27? More and more are forced to buy out their positions, contributing to the rise.

A possible turning point could be the inverse of the massive intraday bull-move of 3/14 (a many week low from which we are up now about 8%). This week, China sell-off was met with a short decline then rally, and Friday's big up-move ended at day's high, suggesting they are eager to hold the weekend.

"This week and Friday seem worrisome."

Up we go next week? 


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