Tuesday, October 28, 2008

Fund Manager Game Plan 2008

The plural of anecdote is data. Following many conversations with the nation’s savviest fund managers, I have discovered how we explain the timing of the 2008 market decline. It is essentially a two-step process:

First, once Obama won the Iowa caucuses in early January, it was time to start selling shares in anticipation of some probability of the risk that he may win on November 4. As the year progressed, this probability has been increasing, intensifying the market sell-off. The idea is that if you thought it were a 100% probability that Obama may win on November 4, you wanted to be in 100% cash (or 100% short, or some combination thereof). Right now, the www.intrade.com odds are close to 87%, which would indicate you may be in 87% cash, having left 13% on the table for now, in the market.

Second, assuming Obama wins on November 4, you would be in 100% cash by November 5, at which point you have a few weeks to transfer the money abroad before it would come under Obama’s 2009 IRS jurisdiction. If you transfer your money abroad by December 31, you would avoid a frontal collision with confiscatory socialism.

This is rational human behavior. The only irrational thing about this situation is that McCain has mysteriously failed to point it out.