The audacity of hope/hype

For the past month, I felt I was growing more and more out-of-touch with reality. I've been committing the ultimate sin in investing: leaning against the wind, i.e., reducing long positions and scaling into shorts as the market gradually marched higher (surely a fitting thing for the market to do in the month of March, what else means in a name these days?). It certainly made me feel being diabolical.

I wasn't seeing the end of world during early February's market swoon. I was actually buying aggressively. But I started selling once the market took off following the jobs number famously talked down by Larry Summers using poor weather as a cover (of course, the number was better than expected, igniting the latest ramp-up in equities). With hindsight, I have been early in trimming my longs.

My problem with the latest bout of optimism certainly is not shared by many in the market. So many sell-side strategists and fund managers have been pounding the table in favor of the bullish view lately. They come from all over the places, including both fundamental types and technicians. Well, I don't disagree with them to the extent if we just want to set a target for S&P to hit 1250 or 1300. My issue with the optimistic view is that the risk-reward is not in favor of buying into the rally at this late stage. For a 5-10% upside, the risk of a 15-20% downside (even with a 50-50 odds) is simply too great for my taste.

However, there seems to be a shift in the national mood lately. Not only are we witnessing the audacity of hope, a more apt description may be that we are embracing hype. Yeah, who in their right mind believes ObamaCare will reduce federal deficits? Who buys into the view that Greece can paper over its fiscal sham? That the other PIIGS will all turn out to be fine? Oh well, maybe this foretells the fortune of this nation. When we start to take a leap of faith and discount all problems and put our trust in the government, our trouble has just begun. I keep hearing a siren song with the lyrics "Under Pelosi and Obama, bets against America are not allowed". I beg to differ, with a heavy heart and lighter wallet.

Call me diabolical, I am adding to my shorts on this up April Fool's Day! No joke!