Great blackjack players step aside when they think "the shoe" may have the best of them. That's what great traders do, too. Take this week.
We've got enough cards that could go against us that any player has to say, "I'll sit this one out."
The first week of any month always has its share of troubles. We get the requisite snapshots, the unemployment number, NAPM, chain store sales, all of which make the first week of any month look like an endless gauntlet. Usually, money-inflow offsets these worries, particularly the inflow that comes from the first week of a new quarter.
Normally I would not fear these numbers. I think the economy slowed in September. I don't expect a really robust employment number. The NAPM came in weaker-than-expected . I think retail sales will be anemic. Prices paid? I see a big inventory build-up so I am not that scared. In fact, I would think that these numbers will keep surprising the bond market to the upside. I am making a bet that way -- but not a large one.
My bet is smaller than usual, because, yes, it is October. I am a seasoned trader. I don't fear things that should not be feared. I love free-falling markets and gut wrenching volatility. But October, that's different. October means you've got to be skeptical of the shoe from the get-go.
Let's explore the myths and realities of October. Of course, everyone knows the Crash of '87 occurred in October. That, alone, however, shouldn't bias the market. What makes October so difficult is that money managers love to lock in good performance in October. Every October for the past few years
managers have sought to take home their big gains. FIDO generated a massive series of sales this month last year. Why should this year be any different?
But it is not just Fidelity. A scan of the mutual fund section of the paper tells me that there are plenty of managers who would like to preserve their plus 25% performances and ride out the rest of the year. Why not just book a good year and take it easy the last few months? More important, why not try to book the gain ahead of everyone else who may be get greedy and wait until November or December to lock in their gains.
Switching metaphors from the casino to the stadium, most managers view the year like good football coaches. If they have a big lead they want to play conservative, raise cash, don't put all of their money players on the field. No owner in football or money management demands that every quarter be played equally as hard, they just want wins.
In fact, the only guys who will play the fourth quarter hard are those who are well behind the averages and those who have a chance to finish in the top ten mutual funds. These players will be going full tilt.
It's too bad that it's October. The combination of lower rates and good earnings should have made things very easy. Instead, let's be cool until we can taste the negativity.
James J. Cramer is manager of a hedge fund and co-chairman of
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Mr. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he welcomes your feedback, emailed to