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Economic Data Slump: Time to Short the Market?

Fin - Breakout - US

Dos Hombres: Two guys, two dour outlooks.

"If you don't have anything nice to say don't say anything at all." It's a cute idea and a super policy for grade school kids, but whoever said it wasn't a financial commentator.

Right now, we don't have nice things to say unless it's Nesto talking about the Boston Bruins.

My burly Bostonian benchmate notes that what's been billed as an economic "soft-patch" is being revealed as an economic wasteland. And that's before the Philadelphia Fed Manufacturing Survey hit the tape. I'll save you the time it would take to look up what the Philly Fed measures exactly. Let's leave it at "manufacturing." The scale is negative 100 (manufacturing coming offline) to +100 (Booming, baby).

The Philly Fed number was in the 40's in March. It was expected to come in somewhere between flat and +20 today. It came in at -7.7, the lowest reading since 2008 which, as old-timers will recall, wasn't a good time for the economy.

Nesto points out that the same people calling for this nascent downturn to be transitory never saw the downturn coming in the first place. "A rut is nothing but a grave with both ends kicked out" he says. I believe that's Boston for "We're not in danger of a double-dip but only because we didn't get better in the first place."

I kicked my segment off with a note on hubris. I said a lot of stuff which was essentially things I've said before phrased in a slightly different way. I'm not plagued by an absence of creativity. I'm plagued by a deep-seeded fear that Breakout viewers are going to get themselves hurt in this market.

As I always say, I read all the comments and the emails, even if I don't have a chance to reply. What I'm reading a lot of lately is from cocky bears. I love talking smack as much, if not more than anyone you know, but you'll never hear my boast about a trade. The market is where hubris goes to die; having overplayed the dark-side in the wake of Internet/ Telco crash this is something I know first hand.

Let me push you up my learning curve. Here are a few reasons not to get cocky about shorting:

  • The sharpest rallies come in bear markets. You can be right and have your puts go out worthless and your inverse-levered ETFs destroy you.
  • The tape is less predictable in bear markets. Near as I can tell, Athens is burning and U.S. jobs are up in smoke. The S&P is higher as I type. 'Nuff said.
  • The "smartness" of bear markets is intoxicating. Obviously the economy is terrible and getting worse. The same was true two years ago and will be true tomorrow. A sense of foreboding is not a trade catalyst any more than hope is.

I don't give stock tips. I tell you what I see and how I think it will impact the markets and my viewers' portfolios. Right now I see not fear amongst longs, but something bordering on cockiness among shorts. If there's one constant in stocks it's this: Whatever camp is the most cocky is about to have the worst beating.

I've been playing stocks for 20-years and the one thing I've learned for sure is this: If you don't stay humble Mr. Market will deflate your ego for you.