"Water shapes its course according to the nature of the ground over which it flows; the soldier works out his victory in relation to the foe whom he is facing. Therefore, just as water retains no constant shape, so in warfare there are no constant conditions."
Sun Tzu

Tuesday, February 12, 2013

POMO Pump: the Reason Why I'm Still Long

Surprised that equities have been rallying since the beginning of this year? I'm actually not. It is surprising, however, how strong the FED's "Permanent Open Market Operations" (POMO) have been correlated to equity performance in recent years.
Rob Hanna of Quantifiable Edges posts related charts in his newsletter (which I'm subscribed to) and they are eye-opening. The following chart is taken from the public section of his blog and gives you an idea of what I'm talking about:

Not surprisingly, we have seen extremely strong POMO activity during the last six weeks. The POMO pump is maybe the strongest reason, why I still trade from the long side. I tried an index short yesterday (TZA), but quickly closed this one with a small loss.