There are times when the market is completely mispriced.
This is not one of those times.
We are staring four very binary events right in the face, all of them with distinct outcomes that would have huge ramifications for the world.
Will the Fed stimulate yet again or will it stand by as the economy trudges along or even weakens?
Will China crash or pull another rabbit out of a hat in the form of stimulus and easing?
Will Europe dissolve and go into a depression or will the politics become more expedient and conciliatory?
Will our elected officials take us over the Fiscal Cliff due to an inability to sacrifice sacred cows or will there be a compromise?
We can only guess at the answers to these four questions. And getting some right but not the others won’t matter, as we cannot be sure of which will have a greater impact. And the timing! Will one issue be resolved just in time for a negative outcome from one of the others to occur?
And so in the absence of answers, the market waits. And while it waits, stocks and gold and bonds and currencies churn in circles. Market players have lightened up but they have not left. One eye on the exits and the other on all of the trades they’d like to make once resolution comes. And, well, here we are.
We are not mispriced at all. We are priced perfectly given the binary outcomes that await us all just around the corner.
In the meantime, some will guess and some will guess aggressively. Others will simply wait.
I have no confidence at all that I know what will happen. I can only muster the confidence that when it does happen, I will know the right thing to do.