Indecision time.

Dated: 7th February, 2018

The month of January saw a 'melt-up' in equities,  although astonishing, because of the sheer force of it, but not  surprising entirely. 

I will keep this month's update short and  sweet as market movements, both up and down, have raised grave questions  in my head as to how to manage money in this environment. I am  distilling information as they come and am in process of synthesizing an  appropriate narrative as to what is the underlying message of the  volatility. 

Notably, without any opinion whatsoever, and without  an ability to bear the consequences of a buy and hold strategy (as  clearly, stocks have moved into punting territory now), the portfolio  holds all cash and opportunistic option positions. I believe that the  risk management ability (max known total downside) of options now is far  greater than portfolio of stocks or plain vanilla (futures) derivative  contracts. 

According to my strategy objective, this is a  deviation from the value-driven principles I love and behold, but the  same valuation driven principles have forced me out of the market. I was  in an opportunistic long call trade for a further 'melt-up' in equities  in the late part of January and the portfolio returns for the month  show the downside to the position as I exited. 

With utter  disgust, I have become a broad-based market investor, if at all, and  will probably remain so till there is further clarity. The recent sell-  off in February, in my view could go either way but the volatility has  been quite amazing, especially for someone without any crisis  experience. 

Some worrying factors that I am watching out for:

  1. The weakness of the dollar.
  2. Increase in long-term interest rates.
  3. Steep correction of bitcoin.
  4. Base rate mismanagement from central banks (especially the United States)
  5. India  specific political uncertainty development (At times I think the ruling  party displays a compulsive necessity to do bold unthoughtful things).
  6. NPA  mess of Indian PSU banks (I still think the worst is not over, and I  think it may be possible that private banks would also join the party).  Balance- sheet manipulation may be prevalent.
  7. Indian  equity market manipulation (some of it has come to light already, and  there is never one cockroach in the kitchen. Case in point VKI:IN).
  8. Deficit  mismanagement from the Indian Government in its last year in government  (this years' budget is a deficit enhancer and the fiscal deficit  targets have not been met in its first four years).

If  anything, I am pretty sure that the fear of losing money may have  finally set in for equity market participants globally, which at the  least, may lead to a healthy capital market.