Dear Diary

I came up with this title because my daughter is sick and I’ve spent the morning reading her a Dear Canada book about the Second World War. Reminds you things could be much worse!

Right now, things could be much worse. In fact, my problem is that things are not quite bad enough but they aren’t near good enough either.

I’m really torn about what I should be doing right now. While I can see that things are bad I can also see how they are not so bad, or that they could quite easily get better. But before they do they might get suddenly worse.

I went into the weekend a little more long than I usually am. This was mostly because I had taken a few positions in the large money center banks, Bank of America and Citigroup.

Why did I buy these banks? Well it was partly what I wrote about last week, about how they should have some good earnings with increased net interest margin and maybe even be able to take share from the regional banks struggling with their security portfolios.

But it was also partly because I had spent a bunch of time reading through transcripts of bank executives at the recent Barclays and Bank of America banking conferences.

I read through what the big banks said, so BAC, C, JPM, etc. And I read through what a number of regional banks like Regions, First Third, Comerica, MTB and a few others had to say. Most of these banks, in fact almost all, were really quite positive. They aren’t seeing the slowdown yet. They aren’t seeing consumers pull back much. They aren’t seeing reduced loan demand (other than in obvious places like finance) and aren’t seeing increased distressed credits.

This put the idea in my head that maybe the slowdown in Europe and China might be enough to slow inflation and put the Fed at ease, without having to slow the economy too much in the US.

So it made sense to take a position in a few banks.

That still makes sense to me. But over a longer time horizon, one measured in months.

For today, I sold the bank stocks I bought a few days ago. It was very frustrating because A. I had to take a small loss and B. I really feel like the market should be close to a bottom soon.

But I still did it. What spooked me are the moves in a number of currencies that happened Sunday night and Monday morning. The pound. The yen. The Canadian dollar.

It is not that these moves give me something specific to worry about. I am not really sure what I should be worrying about. And that is kind of the point. I don’t know what is going on that would cause such huge moves in big currencies that typically don’t move much at all.

All I know is that when the moves are big in big, liquid markets I have to wait it out just in case. This is especially the case with banks, where risk-off situations can manifest themselves pretty fast.

I am aware I might regret it. The other side of it is that big moves like we are seeing usually mean a turn is near.

But usually those turns come because of a pivot or perceived pivot by central banks. And this time, I’m not so sure how that will manifest.

For 14 years it has been a fools game to assume that each panic does not mark a bottom for the next move up. Today was the first day it felt a little panicky. Every other time it started to feel like this, the bottom was close at hand and so today not a time to sell.

But without the Fed or ECB or whatever other central bank ready to backtrack, could this be the time that doesn’t happen?

I just don’t know. Like I said I’m torn. Because part of me thinks we are really, really close to a bottom and there are big bargains out there in stocks. And the other part of me thinks this time conditions are such that it could actually be different.

That puts me square in no mans land. One where I can’t own the banks I really want to own. And also one where I probably miss the turn and kick myself a month or two from now because the market moved and my portfolio did not.