Trader: I dream of another recession (and Goldman Sachs rules the world)
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Furthermore, he has obviously bet heavily on a near-term market crash. He's now financially and emotionally invested in a market crash, so of course he will be confident that it's going to happen. And if his doomsday video circulates the internet and makes a dent, however tiny, in investor sentiment then he has also effectively pushed the market (in a very tiny way) toward his goal.
Take a look at one of his recent tweets: "I've been waiting for this stock market crash for 3 years. #finance #economy"
The world economy is in trouble, no doubt, but let's remain reasonable and rational here. Spend enough time around financial types, and you can always find a doomsayer like this man in any sort of economy.
Investment banks might actually lose money in recessions because they might take illiquid, toxic assets onto their books to service demand (point and case: the mortgage crisis). And securities is only a part of the investment bank business model. Advisory services, largely driven by M&A and IPO volume, provide a decent chunk of profits for banks. Capital markets dry up during recessions, which will completely stifle M&A and IPO activity and therefore revenue on that side of the bank.
This guy is full of shit. When asked what to invest in when the market goes down, his best advice is bonds and "hedging strategies". Bonds do indeed rise in value during bear markets, however hedging has almost nothing to do with profit or loss. Hedging is risk management: covering your ass in case of an unexpected move. For example, if I expect a downward market turn, as per his advice, I might buy up treasuries. But, to "hedge" the possibility that the market moves UPWARDS instead, I might buy an index tracking the Dow, which will increase in value as the market moves up. In this case, hedging is actually DECREASING my profits in the case of a downward movement in the markets. There are much more intuitive ways to play a downward market.
The basic thing is that while there are ways to play down-markets, down-markets and up-markets are not mirror image and are not simply "different ways to make money".
An up-market inherently creates - maybe-not-money - but the appearance of money, the availability of money, "liquidity". An healthy up-market inspires healthy production and makes the liquidity it generates really correspond to people having more wealth on average. An unhealthy up-market naturally involves mis-allocated resources and its liquidity thus becomes illusory and so it is followed by a down-market. A down-market eats liquidity and decreases production meaning the decreased-money people have really corresponds the people also having less stuff, on average. So given the downer that is a down market, profiting become harder on average. Some do great but the average person should assume that the law of averages to applies to them...
go on...
Michael Burry Profiled: Bloomberg Risk Takers http://www.bloomberg.com/video/72756316/
His talk at Vanderbilt University http://www.youtube.com/watch?v=fx2ClTpnAAs
Burry's lightbulb concerning the crumbling housing market was a product of a staggering amount of research on mortgages, contra to the research (mostly by rating agencies) already published. No average Joe is going to foresee a bubble about to explode.
I was thinking something more conventional. For example, contrary to what many may believe, history actually IS a good predictor of future. As an investor, I am not only limited to investing in individual companies -- I can also bet on entire markets/sectors (for example, Burry bet against the housing market). Also recall that the markets are cyclical (that is, recessions follow booms and vice versa).
With that in mind, I could, for instance, have a sector-based model hinging upon the business cycle. Certain sectors, historically, have tended to outperform during different segments of the cycle, and with well-timed bets I can always make money just by recognizing what state of the business cycle we are in.
For example, currently we are in a (if somewhat shaky) "recovery" phase. During recovery, financials and tech companies tend to outperform. I might use ETFs (IXG and IXN) to go long on these markets. I might even enhance my bet and short Consumer Staples, which are expected to underperform during recovery.
However, any kind of shorting strategy involves not just an expectation that the market will go down some time in the future but instead requires that you say exactly when.
Especially, if the stock that you are short begins rises, you may be forced to buy back the stock you've sold - the traditional "short squeeze". http://wiki.fool.com/Short_squeeze
Basically, playing to a down market is inherently harder than playing to an up market. It can be done but it is harder. Just another way the video is full-of-shit as many folks have mentioned.
I think this is still lost on most consumers; most people think stock analysts are the same as economists, and that's completely wrong. A good economist will tell you that they can't predict the stock market, but they can tell you what the economy will do. That's enough to let you know that the direction of the economy and the stock market are not directly linked.
I was sipping a venti mocha when I read this and I laughed so hard there's mocha all over my keyboard. There are people here, actual paid economists, who are doubling up in laughter at your assertion.
The Second Law of Economists: They're both wrong.
I guess the hardest part about it is not letting an economist read about this direction, and claim it as his own...
Hmm, an Imaginary Economist.. Sounds somehow apt?
I still think you are transposing economists and analysts.
Again, there is a difference between stock analysts and economists. Economists are looking at numbers, trends and history more like a computer scientist. Economists are even often specialized into various regions of the country.
A stock analyst is going off of timing and trends more than data. If you've ever traded stocks heavily, you learn quickly that traders throw away yesterday...'that money's gone'. Having worked to make companies profitable, it's unsettling to realize that the stock market is full of people who know how stocks work but have no idea how business works.
I think I've posted this before but in one past company we moved millions of dollars of product around before we did our annual inventory just so our numbers would match what Wall Street expected. We actually needed much more on hand than the stock market wanted just to do business, but they wouldn't have any idea about that.
http://www.nytimes.com/2007/03/04/business/yourmoney/04view....
1. Economists were not aware that there would be a major terrorist attack six months later
2. Economists did predict the recession that occurred in March 2001 due to the Bush administration's desire to weaken the dollar. When polled, a few economists were polled if there would be a double dip recession and 95% said no- a fact that changed six months later.
> A stock analyst is going off of timing and trends more than data.
Not necessarily. You can broadly divide analysis into two camps - "technical analysis" [1] which is what you're describing, and "fundamental analysis" [2] which is looking more at intrinsic value, numbers, assets, things like that.
Warren Buffett, for instance, does plenty of stock analysis and he's not a technical trader at all. He repeatedly says he doesn't try to time the market. [3]
The first book I read on trading - Technical Analysis of the Financial Markets [4] - was from a technical analysis perspective, and I lost money trying to implement it.
Then I read about value investing and started trying to apply those principles - only buying fundamentally sound stocks trading at a favorable price earnings ratio, either in fundamentally defensible businesses or with lots of solid assets on their books, and buying with a big margin of safety.
I haven't had a losing trade since then, though in fairness my sample size is small and I don't sell unless the price of a stock I bought gets over what I consider reasonable. I'm currently holding Microsoft and HP which are down, but both I think are way undervalued (Microsoft is extremely stable, has some upside in the way of a strong research division, and could potentially translate a hit like the Kinect into alternate input devices. HP is being treated as toxic despite owning some nice high margin businesses that most people don't think about when they think of HP, as well as a huge patent portfolio and some good assets... yeah, their management sucks lately, but who cares if a company is trading below its liquidation value? anyways, do your own research, check the financials, etc, etc)
Anyways. Not all traders are technical traders. Fundamental analysis is also analysis, and probably easier to implement to be consistently successful. The top book on that is "The Intelligent Investor" [5] by Ben Graham, which Warren Buffets calls the best book on finance ever written (I agree).
[1] http://en.wikipedia.org/wiki/Technical_analysis
[2] http://en.wikipedia.org/wiki/Fundamental_analysis
[3] “If you’re an investor, you’re looking on what the asset is going to do, if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.” (1997 Berkshire Hathaway Annual Meeting)
[4] Generally considered one of the best intro books to technical analysis. http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?...
[5] http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?...
After the 87 crash, the 2001 crash and the 2008 crash, I'm a firm believer that we will experience crashes every 7-10 years, because the financial markets are fundamentally unstable, and keeping your money in the stock market for long term will only lose you money.
I believe the only way to be in the stock market is to realize that it is a game, that the dominant players all believe it is a game, and you have to know how to play by their rules. In this case, it means that you have to follow the technicals in order to understand the ebbs and flows of the market, and know how to trade, not invest. I believe that given the nature of the markets these days, it's more of a market of probabilities, and short-term momentum rather than fundamentals.
I still think there is room for "investing", but it is high risk to hold things in the market these days.
Sell if their stock price gets overinflated, otherwise just hold and collect dividends.
Don't buy stocks that are trading at stupid prices. Don't even buy stocks that are trading at reasonable prices. Only buy stocks that are trading at a steep discount to their reasonably projected future cashflow + asset value + large margin of safety.
...win?
I mean, you kind of can't lose if you do that. Sure, sell if your stocks get overheated. Or just collect dividends forever if it's a great company that's consistently underpriced. Avoid stocks that are priced high relative to earnings/assets, and even avoid reasonably priced stocks. Kind of a no lose proposition that way, no?
1) Dividend might get cut. All the banks had their dividends drastically cut, and their stock prices kept dropping. I'm talking pre-crisis, EVERYONE was saying that the financials were screaming buys. When a stock's dividend yield is too rich relative to its stock price, and it can't get its stock price to appreciate, many companies will tend to just cut the dividend outright.
2) Just because a stock is low doesn't mean it won't go lower, especially if the prospects for growth keep dropping. Look at CSCO. People bought in at 21 thinking it was a good value investment. Now they are trapped longs, waiting to get out at break even. The same goes for MSFT and HP at this point. These are called value traps, because your money gets trapped while you wait for a pop.
The worst case scenario, which happened in 2008 to many, many stocks and which I believe will continue happening, is that you buy a "value" stock, the we get a recession or another crash, the stock price halves, and then the dividend gets cut or eliminated altogether. Then you're left holding a crappy stock for months or years.
The point is that your strategy is not fool-proof. I believe there are probably plenty of companies where it might work, but there are also plenty of companies in-this-day-and-age where you could get massively whacked following this strategy. And history in the last 3-5 years shows that it doesn't work that well.
I did it with WaMu and lost a boatload. Watching cashflows, etc, etc is fine during a healthy environment, but right now, we have no clues as to the underpinnings of many, many companies, because you really need to understand how to interpret financial statements better than a casual observer. Look at Groupon... would you have been able to tell that their cashflows were positive only because they collected their moneys quickly, but paid their merchants slowly? That takes significant amount of experience to understand this. Probably for most of us here that isn't in the industry, it would have looked great.
> EVERYONE was saying that the financials were screaming buys.
Investing on fundamentals means giving not a damn what everyone is saying or thinking. It's just about the numbers. Actually, if EVERYONE is really thinking something is a great buy, it's probably not.
> Look at CSCO. People bought in at 21 thinking it was a good value investment.
Nothing at 21 is ever a value investment. That's still looking for growth. Just because a whole industry is insane doesn't mean a less insane number is good. As a very rough and flexible guideline, I won't spend too much time looking at something with price/earnings above 12. There's just too many solid companies priced below that with solid businesses and assets.
> The worst case scenario, which happened in 2008 to many, many stocks and which I believe will continue happening, is that you buy a "value" stock, the we get a recession or another crash, the stock price halves, and then the dividend gets cut or eliminated altogether. Then you're left holding a crappy stock for months or years.
That's a good point, yeah. I'm comfortable holding forever with my buys, and when "forever" comes around these things correct, but you've got potential opportunity cost in there.
Good comment here, good discussion, cheers.
It's great in theory, but in practice it's not realistic to believe you can reliability know what a company's "reasonably projected future cashflow" really is. Even if they're in the most reliable business in the world, if someone comes up with a lower-cost alternative next year, all those future cash flows go poof.
Conversely, it's damn hard to tell when some stocks are overpriced. I remember folks saying in 2007/2009 that Apple was wildly overpriced at about $90. I heard the same things about Amazon over the past few years.
Your response is one of the reasons I have to force myself to stay away from Hacker News; I have too much to do but there are some great conversations on here.
This might shock you, but 2-3 years this was the only kind of conversation we ever had on HN with any regularity. It was pretty cool back then.
Anyways, I appreciate the kind words and the discussion as well - drop a line if I can ever lend a hand with anything.
Isn't the top book on value investing "Security Analysis", and "The Intelligent Investor" is just the popular science alternative?
Hell, the financial crisis had a early warning alarm. Bear Sterns imploded in the Spring... was the subsequent collapse of Lehman and the crisis really a big surprise?
My memory of the blogosphere is that people knew housing was overvalued and a lot of people were taking equity out of their homes by remortgaging them at high valuations. But I do not remember discussion of how much fraud there was in originating and repackaging housing loans, and no-one was talking about how these were getting securitized and distributed.
Of course there will be people who say there is a crash. That's what makes a market. But economists don't predict market crashes, they predict recessions. And very few economists predicted a recession, which is what I said.
Any economist who didn't call the bubble, and painful end of it, wasn't trying.
It will get worse. Our economy is debt all the way down.
This recession is severe, but it has nothing on the recessions of the past. Let's not throw out this knowledge; it was won by the accumulated experience of economic hardship unimaginable to modern Americans.
I have a hard time believing there are any "actual paid economists... doubling up in laughter" in your vicinity. Something about the attitude of your post.
Here's why: underlying predictability probably increases volatily. People love to lever up when they're certain; "Private Equity" as an asset class refers to both VC deals and leveraged buyouts because in both cases, they fine-tune their leverage to get the same (high) volatility. Increased certainty makes bankers more willing to lend, and speculative buyers are always willing to borrow.
In my experience, speculative borrowers and the marginal banker overestimate decreases in volatility. Thus, a more superficially predictable economy will lever up fast enough to more than counteract that (sort of like the theory that airbags increase traffic fatalities because drivers overestimate how safe they are and thus take extra risks).
For economic volatility to actually dampen, you'd need economists to come up with better predictions that sound really stupid, so bankers and speculators would disregard them.
Economists spoke of a Great Moderation that had occurred thanks to their ideological theorizing, but that is just an unfunny punchline to a joke now.
If you think this recession is bad, look at recessions before modern economic theory came about. That's what I'm trying to get at.
It makes absolutely no sense to throw out sound, proven macroeconomic theory because of a regulatory experiment gone wrong. I'd say it was that macroeconomic knowledge that prevented that mess from being a total disaster. And now people want to throw that economic knowledge out in favor of ridiculous shit like the gold standard, or MORE deregulation, or on the left twisted ineffective versions of laborism, or whatever. Bleh.
umm..Nope. I can give you a subtle, nuanced argument about why that's plain false. However, I will defer to Dr. Derman here - http://blogs.reuters.com/emanuelderman/2011/09/23/the-perils...
Also, this Freakonomics podcast talks about the folly of prediction in general - http://freakonomicsradio.com/hour-long-special-the-folly-of-...
[1] http://www.boston.com/bostonglobe/ideas/articles/2011/01/09/...
This is magical and, frankly, dangerous thinking.
In fact, this is eerily similar to the hubristic naivete peddled by pundits just before the subprime mortgage crash.
So you are asserting that economics as a field causes stability in the economy?
Economics is the study, and explanation, of the way things work - from a historical perspective.
Then you will understand why I find your comment quite humorous....
That said, we've had several decades of large and various constituencies "financially and emotionally invested" in the government absorption of risk (via Freddie / Fannie, Greenspan Put & Too Big Too Fail), and in the excess stimulation of demand via deficit spending.
The linkages between fiscal policy preferences and political ideologies, of all stripes, really shouldn't be that hard to figure out. I mean, it really shouldn't be that hard to think about what, say, a Paul Krugman believes to be ideal long-term policy, and what that might imply for his forecasted outcomes of various short-term initiatives. Or for your standard issue right-wing think tank circa fall 2003.
By all means, let's inspect this yo-yo's motives and their influence on his opinions. But if we're symmetric about it, we'll overturn a lot of rocks far larger than needed to hide this wannabe.
(As Keynes said, "Markets can remain irrational a lot longer than you or I can remain solvent.")
Greece is in really, really bad shape. The normal way a country gets out of this problem is by devaluing its currency, and enacting fiscal policy measures. Look at Iceland for a recent example, and the Asian currency crisis back in 97-98.
However, Greece is stuck. It can't devalue its currency, because they are part of the Euro. The only way to get this to work is by getting the other European nations to pay for Greece through Eurobonds, but NO ONE WANTS TO. In fact, if a politician did so, they would get voted out. So there is no political will to pay for Greece, which means that Europe is in between a rock and a hard place.
They can do handwaving, etc, but it seems really likely that this European debt crisis will bring down Spain (20% unemployment, 40% youth unemployment and a housing bubble burst), Portugal, and worst case Italy. It's confidence contagion and it will continue to spiral out of control until they eject Greece out of the EU.
So now, we know that Europe is screwed. Will their plan to give 50% haircuts work? Or will everyone leave Europe entirely? This is the question, and I frankly doubt it, just like the trader said. YOU CAN'T SOLVE A DEBT CRISIS BY ISSUING MORE DEBT!!!
Once Greek bond holders get 50% haircuts, what about Ireland and Portugal? Will there be mass selling of those sovereign bonds? It will be a big domino effect, and the outcome is completely unpredictable at this point, but the one predictable thing is that the politicians will likely screw it up, because they lack political courage.
So the advice the trader gives is essentially right. Stay in safe havens for now, if you have money you can't afford to lose. I would stay in short-term US Treasuries so that you don't need to worry about interest rate issues. Don't try to catch bottoms unless you're playing with money you can afford to lose. Right now, the choppiness in the markets are unparalleled, so unless you really know what you're doing, safe havens are the best.
For anyone not aware, you can buy these directly from the US Treasury:
* T-Bill = shortest duration (4 weeks to 1 year)
* T-Note = med duration (2 yrs to 10 yrs)
* T-Bond = long duration (30yrs)
T-Bills are the safest, as they are used to run the US Govt's day-to-day operations. If the US govt ever defaults, T-Bills will be the last type of bonds it defaults on, after the longer-term stuff.
More here: http://treasurydirect.gov/indiv/research/indepth/indepth.htm
You actually can. The issue is who is the creditor and debtor. Krugman wrote about this.
His name's Alessio Rastani, and he's got the basics already set up for some social media fun:
In a market with 10 large financial firms, all of varying strength, a capital crisis may put a few of the weaker ones out of business, since a capital shortage means that a firm doesn't have enough liquid capital to cover its underwriting obligations and its cash flow needs. When this happens, weaker firms are hamstrung if they can't raise additional capital. Typically the government provides free capital in the form of below market loans which can be turned into profitable short term loans at zero risk.
This means that the valuable assets will be gobbled up by the stronger firms and there will be less competition across the board.
Thus Goldman, as the strongest global financial firm, stands to gain the most from any crisis.
Regulators required all US financial firms to accept bailout assistance precisely to avoid what would have likely been the outcome of the crisis -- one or two super firms.
Even if all surviving firms shrunk by 80% post crisis, the resulting diminished competition would be a win for the surviving firms' investors.
It's debatable in the scenario of the 2008 crisis whether Goldman would have survived if AIG hadn't been bailed out. I think it likely would have, but it would have had to raise additional capital from investors... As it was Buffet invested around $5B (but could have easily invested much more -- and the yield would have been way better if more competitors had been allowed to fail).
As a result of this, and the various interests involved, much effort was expended to preserve the status quo.
One might ask what it would take for there to be legitimate competition in the financial services market... My take is that policymakers' desire for cheap (below market price) credit can only be implemented through the sort of public/private partnership... aka socialized financial services like the ones we have in the US. To put it succinctly, cheap credit is a right.
It would be interesting to run an experiment to see how much this policy has impacted American democracy (for better and worse). I don't think such an experiment would be possible though.
http://blogs.reuters.com/felix-salmon/2011/09/27/is-alessio-...
"You don’t need to spend very much time hanging around the comments section (or even many of the posts) at Zero Hedge to discern a strong nihilistic and even anti-capitalist strain to much of the thinking in that community. Independent traders are often men in their 20s and 30s who inherited a substantial sum of money and who for whatever reason don’t have a more attractive opportunity in the regular workforce. They work from home, they tend to have a strong contrarian streak, and they have a lot of time on their hands ... It’s a common misconception that all traders are die-hard capitalists. But in fact many of them are quite the opposite. They still want to make money, of course. But that doesn’t mean they want the stock market to go up."
Apparently, capitalism = rising stock market!
How ironic that he makes fun of Zero Hedge - a site that points out such absurdities!
The varying reactions to this interview are interesting to me in how they reveal people think about the market. I'm seeing a lot of pushback along the line of "So what? Most of what he says is true!" I think people's negative reaction is a result of a decade or more of an ideological push to get ordinary people's savings into the stock market, and, furthermore, to portray the people who are active drivers in those markets as job-creating heroes who know better than some government bureaucrat and who therefore deserve their high compensation. When it's revealed that at least one such marketeer dreams of profiting from a general economic collapse, that seems to invalidate the promises of an ideology that is often described in shorthand as "pro-market" or "pro-capitalism".
Profiting from a market collapse is the preservation of capital which is exactly what capitalism is supposed to do. This kind of profiting would be disallowed by a less free market system and thus the populace would suffer a worse fate as more capital is destroyed via mismanagement.
Capitalism is not the idea that stocks and other investments go upwards infinitely. Capitalism is about the idea that we live a better life when capital is allocated efficiently. It's a good thing that we don't allocate very much capital to buggy whip manufacture. Allocation of capital to those concerns would beget the production of goods we don't need.
Similarly, the market is allocating capital away from national governments who wastefully spend it and allocating it to governments who can put the capital to good use and return a profit from the proper stewardship of their capital.
My guess is that he's just making outrageous statements so that he can get on other news and chat shows.
Is some actual reporting. He's an individual day trader, not an institutional trader of any kind. So I'd say you're pretty right.
OK. As an individual who is not rich, where to start that learning?
1) You go short the underlying market(s), that is you sell them. Individuals don't (as far as I know) have access to the repo (repurchase) markets. What you do here is borrow a stock, sell it, then buy it back later to return to the guy you borrowed from. If the market has gone down you can buy it back for less than you sold it, hence making a profit.
The other way to short a market is a) sell calls or b) buy puts. These _are_ available to the individual. A put gives you the option to sell a stock at some predetermined price. If the stock falls below that price (the strike) then you can sell it at a price above the market. You prob don't want to sell a call as this gives you unlimited downside if teh market rallies :).
There are also more complex strategies such as call spreads, risk reversals etc which give you varying pay-off profiles.
2) You go long (buy) assets which are negatively correlated with the market you want to short. E.g if the eurozone implodes will see the following: dollar and yen will appreciate against the euro, treasuries will appreciate. Gold would normally appreciate as traditional safe haven but the outlook for this is way less certain: it's getting hammered at the moment, partly due to underlying global economic concerns (ie industrial demand for gold will drop) plus people are having to sell gold to meet margin calls on losses in equities. this has triggered further selling by the chinese who are long gold and getting squeezed. Also the swiss franc would normally be a safe haven, but the SNB is defending the level of the ccy at 1.2 vs the euro to protect swiss exports and tourism.
The problem is that the yen, dollar and treasuries aren't great places to park cash: safe yes, you won't lose anything but rates are so low you won't really earn anything either.
in this can can you elaborate how do u actually borrow a stock and sell it ? does it mean that i have to know the person who holds the stock so he can let u the stock at the market price ?
Learning about the markets comes down to what you want to do (trade [stock, options, futures; pairs, scalping, etc.?] or invest [value, trend, momentum, etc.?]) I wish it was as easy as "buy low, sell high", but studies repeatedly show that most investors do the opposite.
A good place to start is with Warren Buffets letters to shareholders & his letters to his hedge fund partners before the Berkshire days. All these letters are available online.
For trading start with places like Stocktwits blogs, TheStreet.com, Marketwatch, Minyanville (they also have some good investing material.)
For blogs, check out Barry Ritholtz (search his site for his "Apprenticed Investor" series" & David Merkel (he has done a lot of book reviews.) Also, there hundreds of trades on twitter now (twitter is rapidly becoming the new trading pit."
Lastly, most U.S. based online brokerages have started to offer "paper money" accounts where you can use their platforms & "trade" real time prices.
All The Best, TDL
There is a large bubble right now, in treasuries. The yields are low due to risk off, panic, deflation, and low because the Fed is unnaturally intervening. And low because they are at the tail end of a 30 year continuous bull market Shorting treasuries is not risk free, it may take some time for them to rise - but I believe with near certainty that they will, from here. Yields can double from here and still be at roughly 30 year lows.
Short treasuries, with patience. It might take 3 or 4 years, but I believe nice gains are in store with very little risk. There are many options for doing this, all of them appear to be sub-optimal, but I found a few that should work with few negatives.
The other upside is that shorting treasuries essentially and fundamentally hedges you against higher interest rates, which is a natural hedge, for anyone. With rates at historic lows, now seems a good time to lock it in.
I just shorted Treasuries via the TLT when it was 122 and just covered this morning at 116.75, when it hit the 10 day MA. I made a small profit, but there's no way I'm going to hold onto a position like that for 3-4 years. You have no clue where TLT will be trading at that point, and you could go broke shorting it.
Trading is about getting the DIRECTION and the TIMING down right. There will be a time to short treasuries, but now is not the time, at least in my opinion.
I decided to buy an ETN which does not have this specific problem. But I am of course paying a fee for the trade, so I guess you could call that a decay. And, since it is an ETN, I am taking on credit risk from the issuer -- which is the more salient downside.
Like I said in OP, all the methods of doing this have downsides. But I am comfortable with what I am doing, I believe the upside/downside risk is well in my favor.
Of course read the prospectus. As always, everyone should do their own research, and seek to find instruments they feel comfortable with, and they believe are suitable for whatever it is they are trying to do.
Which particular ETN are you referring to? I'd be interested in reading the prospectus.
In the chapter on bear markets (downward markets) the advice is:
- Keep your money safe - use interest bearing vehicles such as bank and building society accounts (hmm, really, didn't people lose money in those?), National Savings certificates, or guaranteed income bonds.
- Stick to necessities - get shares in stuff people always need, like food.
- Use trailing stops.
I guess once the market HAS crashed if you're sure which shares are way below value simply because of the crash you could buy those and wait until the market returns to normal?
Just make sure your reading material matches your expectations. They're going to ultimately teach you the "buy low, sell high" basics. And that's fine if you are just hobbying.
What other folks in this sub-thread are talking about - shorting, puts, calls, futures, speculating against commodities and treasuries (not just buying them)... these are what the pros are doing and probably not going to be covered in 'for Dummies'.
Whether or not you'll make/lose more money with one or the other is beyond scope here...
All The Best, TDL
Is from a guy that have been predicting this collapse since 2006.
> I thought that he made me think of Peter Schiff
Wikipedia: "Kondratiev waves (also called supercycles, great surges, long waves, K-waves or the long economic cycle) are described as sinusoidal-like cycles in the modern capitalist world economy.[1] Averaging fifty and ranging from approximately forty to sixty years in length, the cycles consist of alternating periods between high sectoral growth and periods of relatively slow growth. Unlike the short-term business cycle, the long wave of this theory is not accepted by current mainstream economics.
...
"Long wave theory is not accepted by most academic economists, but it is one of the bases of innovation-based, development, and evolutionary economics, i.e. the main[citation needed] heterodox stream in economics. Among economists who accept it, there has been no universal agreement about the start and the end years of particular waves. This points to another criticism of the theory: that it amounts to seeing patterns in a mass of statistics that aren't really there."
Fourier Analysis shows you can model any curve by summing enough sine waves of different amplitudes and frequencies; so given any shape of any market over any time period, I can show a selection of long, medium and short cycles that will approximately match the market. But this will have zero predictive power.
http://northcoastinvestmentresearch.files.wordpress.com/2009...
http://finance.yahoo.com/echarts?s=EURUSD=X+Interactive#char...
That's a 6 months chart. From May 2011(1.48 Eur to 1 USD) to today(1.35 Eur to 1 USD), it has been very volatile but generally trending down. So I would say he is right.
I get paid mostly in Euros, and my debts are all in dollars. That makes me emotionally invested, too, but it also means I know what the Euro/dollar ratio is doing all too well.
Fiat money isn't ideal, but neither was the gold standard.
USSR? It's pretty clear that they suffered a lot due to economic mismanagement (i.e. inefficiencies due to how their economy was run), but that had nothing to do with whether fiat money was involved or not.
Zimbabwe? The causes of hyperinflation was a combination of a collapse of (especially) the agricultural sector and foreign-currency denominated debts. Both events were caused by political decisions, not by fiat money.
It is likely that all the collapses you mentioned (including the ancient ones) involve some level of economic mismanagement, where the productive capacity of a society was destroyed, misallocated, or left idle.
Fiat money was never the problem. If you disagree, please point out how fiat money was the problem, instead of only asserting it.
It's also very easy to call yourself a trader: just get a zecco (or w/e the retail company of the month is), seed with 1000, and buy one share of a penny stock. Congrats: you are a trader :)
Looking at this man, he's bet heavily on a crash so what would you expect him to say? Frankly I'm a little surprised they gave him air time.
http://www.dailymail.co.uk/news/article-2042717/Alessio-Rast...
Startup:
Record Number of Companies Pull Back on IPOs http://www.newsmax.com/InvestingAnalysis/ipo-offerings-compa...
Europe:
EFSF - 133% Of German GDP To Cover All Of Europe's Bad Debt http://www.zerohedge.com/news/explaining-how-just-announced-...
Germany rejects idea of further EFSF expansion http://www.marketwatch.com/story/germany-rejects-idea-of-fur...
China:
Chinese growth could slow to zero in 2012 http://www.iii.co.uk/articles/18948/chinese-growth-could-slo...
Cash Crunch in China Picks Up Momentum; Chinese Economy "Teetering On the Edge" http://globaleconomicanalysis.blogspot.com/2011/09/cash-crun...
Japan:
Japanese economy contracted more severely than previously reported http://online.wsj.com/article/SB1000142405311190328570457655...
Japan auto lobby cuts 2011 sales outlook by 10 pct http://www.reuters.com/article/2011/09/27/autos-japan-idUSL3...
US:
Consumer Confidence Stagnates Near Two-Year Low http://www.businessweek.com/news/2011-09-27/u-s-economy-cons...
Food stamp use rises to record 45.8 million http://money.cnn.com/2011/08/04/pf/food_stamps_record_high/i...
Overall:
Are We Headed Into A Recess/Depress-ion? The Answer In 9 Simple Charts http://www.zerohedge.com/news/are-we-headed-recessdepress-io...
All signs point to the second dip in the global economic depression.
They're cutting the size of their coffee cups to save money, hardly secret rulers of the world stuff, is it?
This guy was just saying exactly what BBC viewers wanted to hear... That it was the evil bankers fault, not people taking out more mortgage than they could afford.
They're cutting the size of their coffee cups to save money, hardly secret rulers of the world stuff, is it?
That's the same Goldman Sachs that made a profit of $2.7 billion in the first quarter of this year alone:
http://www.guardian.co.uk/business/2011/apr/19/goldman-sachs...
They had an excellent Q1.
They had a very pedestrian Q2.
The rumor is they're having an atrocious Q3.
1) attend college and pay for it later 2) buy a car to get to work 3) raise capital to start your business 4) Allows people to enter positions which cut down the risk to their business from external variables like currencies and commodity prices 5) Allows people to do stupid things 6) Allows people to travel light without having to carry loads of cash 7) Enables stupidity
If you start holding the enablement of stupidity against industries then there will be very few left that dont enable stupidity in some form or another.
[1] http://en.wikipedia.org/wiki/Atomic_bombings_of_Hiroshima_an... [2] http://en.wikipedia.org/wiki/Manhattan_Project [3] http://en.wikipedia.org/wiki/Bhopal_disaster [4] http://en.wikipedia.org/wiki/Thalidomide
We need to learn lessons from what happened and help prevent it from occurring in the future but lets not go overboard here.
I was involved in a conversation with a fellow programmer who was complaining about how much investment bankers made, and that they didn't do any real work.
I pointed out to him, that as programmers, all we do is think and type. We have the "luxury" of sitting in a chair all day long and only moving our fingers.
There are teachers, police officers, and coal miners that think the exact same thing about us as well. So let's not start throwing rocks here at other people. We should just be happy that we're so well paid to be doing something we love. No need to start saying that investment bankers or traders aren't doing anything "useful". I'm sure their clients would disagree.
if you define 'usefulness' in terms of 'alleviating some form of human suffering' then i think your point vanishes: prop traders don't have clients. they make money for themselves alone.
Not sure why my comment was downvoted, if the secret of ruling the world is using smaller coffee cups, anyone can do it...