WELCOME TO THE CASINO…
I don’t have much value to add in this story, but I just wanted to point out something that is probably rather obvious, but perhaps not fully appreciated. The last two months have been truly incredible in terms of market action. If you look at just the last 8 weeks we’ve seen a near waterfall 19% decline, followed by a 10% rally, followed by a 7% decline, followed by a 10% rally, followed by an 8% decline, followed by a 7% rally and then the 8% decline of the last two days. Whew.
I still stand by my September 10th comment:
“I would go so far as to say that the risks are so enormous here that the water is simply not worth even dipping a toe into. As investors we have to recognize that we’re in the business of taking calculated risks and not risking capital based on a roll of the dice…”
No one is taking calculated risks at this juncture. The macro picture is in such disarray that anyone betting long/short here is just standing around a spinning wheel hoping they bet on the right color. The speed at which this wheel is spinning though, it might just fly off the table! At least in Vegas they give you free drinks! As Victor Ortiz learned last Saturday night, “protect yourself at all times” – appropriate approach given the incredible market and economic environment we are experiencing…..
I basically agree. But if the volatility continues option straddles might work. I thought about buying vxx along with a put as a hedge early yesterday. Woulda shoulda coulda. Oh, well, at least I’m not in the hole.
Very true… But are you 100% in cash? I think very few people truly are, and everybody is afraid to really get out.
About 8% long bonds and 92% cash. Been that way since April, except for some very quick (less than 3 day) trades. I believe strongly in selling your way out of trouble.
Sorry for that anonymous post. Was’nt paying attention.
I think we’re going to be making lower lows and highs.
I bought some SPX 1150 calls in the expectation that we’ll rally on some silly rummour or non news days. I’m selling the calls at SPX 1180~ if the market rallies. If the market keeps on going down, well I’ll sell the calls. I’ve also sold some more options with the capital I earnmarked for these kind of days.
I *think* I’ll be ok even if the SPX drops 20% from the 1216 level we saw a few days ago. To be doubly sure, I’ll start another bear spread to further protect myself.
That aside, anyone has any Comments about this?
http://www.voxeu.org/index.php?q=node/7001
Basically, the solution here would be to make a huge mutual fund that would buy bonds from all the euro nations depending on some weightings. Then the fund will sell a synthetic eurobond to banks. I think this is a good short term fix, considering the political challenges of issuing a real eurobond and full fiscal union.
lookin like a head n shoulders on that chart……
the only thing for certain IS this isn’t close to the bottom
Technically speaking H&S occur at market tops.
Usually that’s true, but not always. Sometimes they are continuation structures. It is a really hard one to read, though, in real time.
See example at:
http://mcoscillator.com/data/charts/weekly/Continuation_H&S.gif
See also:
http://peterlbrandt.com/do-continuation-head-and-shoulders-patterns-really-exist/
And as for what this structure really is, see:
http://www.mcoscillator.com/learning_center/weekly_chart/1946_analog_holds_key_for_current_market/
its always a sign of weakness in any time frame.
cullen, the volatility can whipsaw you if you try to trade it, so you have to form a macro view and stick to it in a measured, risk-sensitive way. i know, i am preaching to the choir.
what i have done over the past two months is analyze the ability of the US and Europe to solve their economic issues through the lens of their respective abilities to solve collective action problems. you wear MMT glasses, i wear problem-solving process glasses when i act as a commercial mediator, and i have now started to apply that analysis to the macro economic environment to reach an investment outlook.
without going through the tortured analysis, i have concluded that each of the US and Europe has significant (to use ben’s word) structural impediments to achieving an effective solution program to the problem of an incipient recession (and in europe a possible full-blown financial crisis that will worsen the US recession).
so maybe it is a casino, but i am placing some significant short bets that things will get worse before they get better.
and you thought i was a permabull…
Indeed you are preaching to the choir. I’ve been using this approach for roughly 5 years now. My point now, is that we’re not in 2010 or 2009. We’re back in September 2008 and the whole world is a disaster. No one knows what’s going to happen and no one know when govt intervention will come. So, I wish you much luck with your shorts. But you have to recognize that what you’re placing is a bet that can be wiped off the table by one ECB press release.
I’m all for taking calculated risks in this sort of a market environment. But I don’t think the calculations are very accurate anymore. My algo, which is remarkably steady (and accurate) is all over the place. That doesn’t happen. We’re seeing something truly unusual happen here. I understand the macro, but I don’t want to try to predict the madness of men here. That’s my position (for now).
Truly, good luck. The risks are certainly skewed to the downside, but if you can predict the sort of swings we’ve seen lately then you’re destined for much larger things than anyone in investing history….
“But you have to recognize that what you’re placing is a bet that can be wiped off the table by one ECB press release.”
agreed and good advice. i am by natural disposition optimistic, and thus am a nervous short.
however, my conviction comes from looking very carefully at the decision structure in the EU with respect to this incipient financial crisis; there is a very slow process (by US standards and certainly by market standards) that is moving with great uncertainty as to eventual result, with substantial northern european interest in crushing the can rather than kicking it. so there is not the same central bank put risk in europe as in US, although i agree it cannot be ignored.
however, i do agree, from something as simple as an annual IMF meeting in DC this weekend can come much tears for a short, and this is a nervous short
Cullen,
Long time reader, first time poster.
I’ve noticed that you get questions on your algo with some frequency and you’re usually quick to share with us the direction in which it is pointing. Might I suggest some sort of streetlight indicator on the home page of pragcap? Something really complex like green for long, red for short. Of course I can think of many reasons for which you would prefer not to do so, but I guess it doesn’t hurt to suggest it… I hope.
Regards
Watching my portfolio lose a month’s wages….led me here, nostalgically
http://www.youtube.com/watch?v=43wN23qvlbU
“While the poor people sleepin…”
Seeing them next week! Although, that’s one of my least favorite songs of theirs. “The Royal Scam” might also be a fitting tune for the times… Or “Black Friday.”
Now I know what the people watching the Tacoma Narrows bridge felt like.
About the only people in this market are traders and they/we are going to push this market any way it will move. I think down is the easiest direction now. So there you have it the market goes down. I’ve heard that from a lot of people lately, I didn’t know there were so many traders.
2 V’s for me, Voodu and Valuation, don’t understand charts and looks like voodu to me, I accept graphists as valid investment tecnique. Only trade limited losses using options structures at this point.
you are all sounding like a bunch of pre-menstrual women. get a grip!
Mogens-
PMT comes once a month for many who understand MMT. I like women with enlarged XXXX so I’m upset this is occuring with out live video.
I do like how you made sure to include women in here as opposed to pre-menstural men.
But like a Sorority House…I guess were all on the same cycle now. Arrghh damn it…i was going to the beach this weekend…and now i’m bloated and not feeling sexy. Chris and Michael you can come to my house..bring some chocolate and Pino.
i am proponent of MMT but not the panic of todays market.
in ten years time from now, we’ll all be drinking tequila at the pool side having a laugh about the panic today
“in ten years time from now, we’ll all be drinking tequila at the pool side having a laugh about the panic today”
(Estrogen Levels: High)
We get your point. But you’d we wise to keep my menstrual cycle out of the conversation. Because that does nothing but open the door for me to talk about your obvious lack of endowment.
<3
…a pragcap first. congrats, cullen.
Mogens-
you said the same thing exactly 10 years ago…when the market went from 1133 at the beginning of Septemer 2001.
why didn’t you just say I would have to wait 20 years to have a positive long term gain. So I’m way ahead of you..I’ve been drinking for weeks now.
All kidding aside..we see the market hitting 966 on the SPX by January 2012. A 20% decline over 68 trading days on average. By Q1 of 2013 the market heading to 875. Some here think lower. They think but if you draw the trend line it is a real possibility. The market doesn’t care what I think it should do..but i do like to let others know where my head is at today.
This stuff is fun and I joke alot…but it’s important to not dismiss what’s going on. The good news is we are closer to better valuations and one could buy here and do just fine as you have said Mogens. I’m waiting for now. We got some signals and using Cullens Casino reference..we’ll we placed some trades on 9/6/2011 into EM and it was a gamble that has not worked out. This is real money lost on paper. It was a roll of the dice…no other way to describe it.
We were 45% cash starting this week…I almost tried to play hero again yesterday but I did nothing. There are no stars given to heros for killing people in this market.
I had a bit of a panic myself. Thought for sure I was out of beer. But I wasn’t and the bar-b-que will go on as planned.
That is scary! Glad to hear you averted a crisis.
mike,
another .50$ up a case on my brand.
thats $2.25 since ’08 with NO retractions.
thats MY CPI…….i will in the only house i have ever built til feet first day and love it.
I said it in other thread, will repeat here: Volatility is the name of the game, so play it.
It’s time for option trading and some heavy hedging both on the downside and upside. However you don’t want to crush profit potentials and downsides are always more dangerous. Even if the ECB or the FED announces tomorrow that they will print money and throw from helicopters (which they won’t because they would be burnt the next day) the recession is not going to disappear suddenly).
I’m betting? Maybe, but it’s a matter of risk and reward. Shorting commodities is a safe bet IMO and there is always stop loss.
Also, people should get used to this sort of environment because there ain’t ‘great moderation’ no more. Get used to it or get out of the market, trading this thing is not gonna be easier in a long, long time.
Satyajit Das recently made similar comments. http://pragcap.com/3-principles-of-investing-for-the-debt-engame
I think you’ve hit the nail on the head. Bearishness will prevail for some time but the market can go many % in either direction. As Cullen pointed out earlier the market could surge on happy talk from the EU. Maybe wait for option premiums to back off a little? I’m in no hurry to stick my head in the oven.
Leverage
This might not be the forum och thread; but how do you play it? I am quite experianced with derivatives and I trade my own book since -03. My personal reflection is that no one makes money in the long run if they do not sell vol.
And also a short notice to anyone playing VXX ETF. Don’t (at least not overnight if they are leveraged). Everyone knows, but I just saw that someone was thinking of it…
Please over look the bad written English, since it not my native word.
/ DR
Gravity will eventually win out, but a small rally may come tomorrow on the fact that none of our problems are solved nor will be, and nothing blew up as the cans get kick down the road again by words of money motivated men.
Since coming to this site as have been trading as if I were clarevoyant. For whatever its worth my new style analysis has the market getting back to the year’s high by December.
Since I’m using information I’ve learned through MMT, I’m surprised by what I’m reading here. I guess we will see in a couple of months.
-Mar
Mr Market is giving ben the reasons he needs for a big helicopter drop,without ridicule from the tea party types.
The economy needs a massive sustained injection of money to grow and so enable the market to rise. However, the only way the economy can increase the money supply is to borrow. But the economy is already burdened by debt. Even the government is being told to reduce the growth of its debt.
There is a simple solution but it requires a change to the monetary system, a change that the current people running the system would not be willing to implement, not even to save the whole economy.
So we must wait and watch as the whole economic and financial system collapses. Hopefully, possibly in ten years time, we may be able to reform the financial system and implement a system that is stable and sustainable.
The economic indicators today did not look that bad: LEI was up a bit, jobless claims down, house prices up quite a bit. Whatever rocks the markets does not come from US but from Europe. The things the Europeans need to do, they can’t do them. ECB needs to engage in unlimited interventions in the market buying sovereign debt and maybe setting maximum interest rates that cannot be surpassed, as Erwan Mahe suggests. Are they going to do this? Yes but only after disaster happens. ECB has to become like the Fed but what are the chances for this? Zero now and almost 100 after the disaster. Therefore, there will be a disaster.
Cullen,
I have predicted EVERY market swing for many months now, generally to the hour, as Michael Santoli of Barron’s can attest, since he has been on my daily e-mail blog the whole time. I strongly encourage you to contact him and ask him if this is indeed true. I would be honored to include you, if you would provide an e-mail address. BTW, our portfolios are up >20% this year, with positive returns of >2% every month, with the exception of April, when we were down ~2%.
John Kinnucan
BroadBand Capital Management