"If everyone is thinking alike, then somebody isn't thinking."
In today's market I frequently refer to this quote from General George S. Patton. You don't become a four-star general like Patton by being a "yes man" or surrounding yourself with what we used to call "hinges" -- new midlevel officers who appeared to have had hinges surgically implanted in their necks because every time their commanding officers made a comment, they would nod in agreement. Occasionally, we would recommend that they apply some WD-40 to their hinges to stop the squeaking.
The market continues to roar higher, fueled by small pieces of financial tinder.
led the recent charge by reporting better-than-expected earnings, partly as a result of cost-cutting. But reducing costs can only get a company so far before it starts to hit bone. At some point, the market is actually going to expect companies to make money -- shocking, but true. Alcoa is currently trading where it was a year ago, before the financial tsunami, but its revenue is down more than 70%. I'm no rocket surgeon, but that doesn't make too much sense to me. But then again, a lot in this market isn't making sense.
crushed expectations and
easily beat. On Monday, the National Association for Business Economics (NABE) declared that the recession is over.
Speaking of rocket surgery, an understanding of financial physics says stocks and the markets tend to revert back to their mean over time. But when applying regular physics we know that a body in motion tends to stay in motion until acted upon by some outside force. Folks, this market is a body in motion, and investors are getting sucked into the wake.
The more the market goes up, the more people want to get in. But beware of the packed movie theater. At the first cry of "Fire," it could get ugly as people race to the door. In the past couple of weeks we've smelled some smoke, but people shrug and continue to pack in.
Don't get me wrong -- I'm trading this market. But don't think for a minute that am I not hedged with a straight line to the door. And like George Costanza, the
character, I have no problem mowing people down as I break for the exit.
Eventually, the government will pull back its support beams and unemployment will hit 10%. The people declaring that the recession is over are people with jobs. Gold and the dollar are locked in a spirited battle as the specter of inflation haunts, and the consumer faces an uncertain housing and employment picture as the holidays approach.
I don't consider myself a bull or a bear right now. Rather, I imagine myself sitting on an E-3 AWACs aircraft gathering as much intelligence as I can and using it to make targeted strikes. I think commercial real estate is smoldering and have several bearish options positions on to take advantage of those headwinds. I'm employing iron condors on several sectors that I think will move sideways for the near future, along with solo credit spreads. The VIX is coming in a little, but I'm not buying the head fake and will continue to sell volatility.
Firing Line: Make sure you question whatever thinking is in fashion. Also, develop a contingency plan for when the market turns. If something looks too good to be true, it usually is.
Matthew "Whiz" Buckley is the Managing Partner of
, a business-consulting firm specializing in leadership development, risk management, and strategic planning for Fortune 500 companies and related organizations. Whiz flew the F-18 Hornet for the U.S. Navy. He's a graduate of TOPGUN, has close to 400 carrier landings, and flew 44 combat sorties over Iraq. He transitioned to the business world after he was scheduled to fly his first flight as an airline pilot on 9/11. Instead, he ended up flying combat air patrol over the U.S. He rose rapidly though corporate America, starting as Managing Director of Strategy at a Wall Street firm, to CEO of a financial media company. He is an internationally recognized speaker and combined his unprecedented experiences in the military and corporate America in the writing of From Sea Level to C Level.