Respecting The Bull Case

The level of complacency in the market is about as high as it gets. The VIX is about as low as its been since before the crisis in 2008 and anecdotally it seems worry has been banished. I am very tempted to move from my very modest net long and become more defensive but I am stopping myself for the following reasons:

• We are headed into a very seasonally strong period. In seasonally strong periods extended markets often become more extended. A lesson I have learned the hard way numerous times.


• The backdrop of corporations aggressively repurchasing shares remains.


• The S&P 500 trades at 13.5 times expected earnings for 2012, which is reasonable.

Given the market backdrop I am very comfortable with my positioning. I am finding some very attractive stocks that have been discarded as investors chase beta. I believe these should outperform my hedges over time regardless of market direction.