The Markets Have A Built In Bias

Well, the example hedge is doing OK for now. That is during a 10 point down swing in the S+P 500, over a weekend where we couldn't touch the controls.

So what do we do for an Encore? We could analyse what happened.

Insurgents overran half of Iraq. They did it while everybody was busy in Afghanistan, feverishly working on the Surrender Timetable in the so-called "Preferred War." They want to emulate their stellar success in Iraq, I guess. Naturally being hedgers, we kinda figured something like that might happen, so we protected our downside by hedging the overall short volatility position we had (like Everybody had) over the weekend. Voila!

But the main topic is that the market defaults to fear. We are all nervous nellies. When the Fox News is in the Liberal Happy Henhouse, all hell breaks loose for a few seconds. "Oh, that's nothing!" they all say until it is time for Chicken Dinner. Then they find out that they are on the menu.

A second bias is inflation as they desperately try to print away spending on everything. Cash may be safe for now, but at this rate, not for long. Another thing is lying about US Energy Reserves and Stability I think. As the Middle East gets into a Preferred Third World War, the only way you'll get the Liberals to show up is to bomb it with George Soros Monsanto GMO Pot. Don't worry.... It was likely genetically modified to be addictive as hell. They'll come running armed to the teeth with Bongs an' bullets galore. Or maybe not.

Another default is that bad news is good for hedgers. This is where they can add to one side or the other, and balance it out to make money from a move either way from the current state. Even when the news is sketchy like that from Iraq or Afghanistan half a world away, it adds the needed entropy and uncertainty that by its very nature is unstable. We should be adjusted to the current stable spot, and it will get unstable. Rarely it does nothing where we would suffer albeit minimally.

Overnight options generally don't trade. There is another source of uncertainty that has to be balanced going into it. Unfortunately it could do nothing, creating now what they call a meltup. But at least we tried. That is the best we can hope for. After all, that seems to be better than the alternative prediction theory, and it seems to be the only set of predictions that work for me more often than not. Otherwise, you could be a genius. See below.