"Under the assumption that Roubini is right how does the prudent trader play it? How does the prudent investor play it. A lot of muni funds are hitting all time highs - 10 year Treasuries are holding 1.48- 1.60% yield _ preferred 's (PFF is one I hold ) are near multi year highs and emerging market debt funds are moving. I am hanging near the exits"
I would first say that both the trader and the investor should look to the charts - just on different time frames-
The trader should be more agile and able to make tactical decisions based on shorter term stock/market fluctuations.
The investor- should consider the lesson of the past lost decade- and not simply be a passive enrollee expecting that it will all work out eventually. Particularly , if the investor doesn't have 1 or more decades to recover. The investor should also have an investing model they apply, with periodic rebalancing the pros say-
WWW.bogleheads.org is one approach-
the other- more active approach -
WWW.theIvyportfolio.com advocates an active management approach and frequent reallocation. Wish I had enough $$$ to apply that concept!
The pros often get it wrong- Meredith Whitney proclaimed that Bonds were ready to crash last year- Those that got out of bonds on that proclamation lost out on a continued uptrend.
If investors allow the logic of the dire future events to shape their perception- their Bias becomes their approach, when the market may not react as expected. The chart tells the story, and supports or rebuffs the premise for one's Bias.
I think traders and investors should similarly consider the market environment and simply reduce their risk in both their trades and investments when the market is choppy and undecided- and increase when the market is trending in your favor- Yes, the sales people at the local broker will proclaim how much you would miss out on should the market stage that upside 12% rally and you weren't in it for the first 4 days. However, Cash is indeed a position, and preserving cash in times of uncertainity is indeed good stewardship. The market can go down a lot quicker than it goes up-
Should a 'black Swan' event occur- Israel Nukes Iran-
Go to cash in all accounts and look to repurchase a week later.
Should be a substantial discount.
One never knows how the market will assess any of the possibilities- Often , we will hear that such and such an event is already "priced in" as the reason the market doesn't react to an event- and other times the market sells off or rallies on some news blurb.
The market has staged a slow grind here- since June- but if one expects a big sell-off event will occur, it would be prudent to raise stops or raise some cash to lock in recent gains.
We don't do that, because we are afraid we will miss out on a continued upside move that occurs because despite all the overhang of possible negative events, the market may have already "priced" them in.
I would agree that the overall larger market outlook should be more pessimistic than optimistic- Traders should be opportunistic, looking for pockets of strength and sector rotation with short term swing trades. All it will take is a news event that proclaims an agreement is made to preserve the Bush Tax cuts and the market will rally-
Or some bonehead in European politics making a proclamation.
Or the Fed throws the market a bone with a final QE3 attempt-
The market could/would respond to any of these events. The reaction could not be as one anticipates. One's Bias to the way the market reacts could prove to be incorrect- One could favor a short position when the market gorges up a rationale to put in a rally despite the solid logic supporting the negative view.
If Logic is not the answer, then what?
Recognize the market can be illogical and simply follow the present logic as seen in the chart action- Why should a business have a value of x one day when it closes, and the following day- with no news event or release, have a different value of x + 1 or x - 1? If all the known information about a specific company was known the day prior, what could possibly cause the market to change the perceived value of that company the next day on no discernable material news?
The reason the value changes, is that the market perception has changed based on emotional factors perhaps- (Sentiment) or sector strength or weakness. Perhaps having nothing to do with the specific company, but it's stock price is affected none-the-less.
The market can be irrational in the near term- Over the longer term it has greater periods of lucidity-Or at least we believe it does.
Recognizing that one is trading or investing with a capricious and emotional counterpart should make one always be on their guard for the unexpected.
Good Luck, SD
Ya think? 
