Current Market Conditions - October 2013

aplus's picture

This is an old letter by Hayman Capital from June of this year, but it's worth reading again.  Pay particular attention to page 6 starting half way down.  

We are not 'doomsdayist' here at aplustrades, but it's worth noting that the P/E multiple on the S&P has gone from 16.3 to 19.3 over the past year (data by Barrons below).  


This is a significant expansion, and we're cautions on the market in the short term based on concerns over the following:

- Weakness in China's growth
- Weakness in India's growth
- QE is closer to an end, and Fed tapering will have to happen at some time, which will take the tailwind out of the market
- Unemployment is still not improving at a pace that can absorb those who are looking for jobs
- Labor participation is at an all-time low (
- The US budget impasse, Government shutdown, and upcoming "Debt Ceiling" limit on October 17th (Explanation by The Slate)

October is going to be an action packed month, and the trick for us is to try to make money but sidestep as much of the risk as possible.  We may hedge our portfolio with VIX options, be conservative and close positions earlier than normal, or be cautious on upcoming trades to protect principal.  The important thing is that we are looking at macro level indicators and trends as well as what is happening with our positions every day.  The two are connected, and we will adjust our trading strategies accordingly.


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