On the Casino Floor, It’s a Crapshoot

This is what Casino Capitalism looks like. A damned-if-you-do, damned-if-you-don’t trading bonanza…

Quote from Barron’s market analysis this week:

Many investors, especially the so-called macro-hedge funds, are positioning for that damned-if-you-do, damned-if-you-don’t outcome to Greece’s election by buying bearish put spreads that will increase in value should global market indexes slump post-vote. Out-of-the-money puts that would increase in value if stock indexes fell 10% or more are extremely expensive. So cautious investors are selling others much further below market levels to defray the high cost of hedging.

Yet, many investors and traders are just as afraid of missing a rally, as they are afraid of a sharp decline. They believe that any negative economic development will be met by a government policy response. The Federal Open Market Committee meets Tuesday and Wednesday, and some investors believe that the U.S. central bank will unveil another iteration of quantitative easing that will spark a massive stock rally. It’s a vicious cycle.

However, some investors believe that the financial market’s performance, or lack thereof, is a leading indicator of government countermeasures. The more troubling the economic data—and recent statistics have been less than stellar—the greater the potential policy response.

We can keep this up until it all blows up in our face. Thank you, Mr. Bernanke…


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