Hi folks,
Here’s an interesting flat-out “We’re completely screwed” perspective on the spot of market trouble we’ve been having lately. If you’re in the mood for Titanic 2, it’s a thumping good read (not recommended for the heavily margined).
I’m not convinced yet that this is the beginning of a bear market, but I kept on selling today, again into this morning’s strength, and it felt comfortable. I’m sure I’ll have a twinge or two of doubt when the market rallies sharply, but I’d like to think that I can score at least a few decent buy-back prices to make these commissions and currency conversion costs worthwhile. (Then I’ll have to deal with the aggravation of my buy-backs immediately plunging, but one miscue at a time …)
By the way, on yesterday’s post about keeping an eye on stocks that are showing surprising strength as all else plummets, you can scratch Hi-Tech Pharmacal. It got clocked today. But you get my drift …
An interesting thing that I didn’t know is that there are ETFs out there that are short positions on the market (thanks to www.chartingstocks.net at the link above.) Now that’s useful if you’re trying to run a non-correlated portfolio. While the market goes up, the short ETFs would go down in value and you would accumulate more shares; conversely when the market drops you would take profits on the short ETF and cycle money into “normal” stocks.
Or … if at the end of the day all this negativity has turned you to the Dark Side, you can just bet the farm on Armageddon directly. Check’em out.
DOG – the flip-side of the Dow (love the symbol); and
PSQ – the inverse of the Nasdaq (“I piss on your silly QQQ’s” – paraphrasing Monty Python and the Holy Grail)
As for today, the Dow was down about .5%, and the S&P500 and Nasdaq about double that. More flight to quality, and all markets pretty-much again closing at the lows of the day – not ideal. Europe was down about 1%-2% and Asia was down closer to 4% earlier in the day. Who knows, tonight our Asian and European brethren may decide that being down only 1% is a good thing, and rally on the “they’re doing less badly than we are” theme. 
See ya later,
Allocator
Copyright 2007 – all rights reserved
10 Comments
March 5, 2007 at 10:17 pm
Hi
yeah regarding the ‘completely screwed thing’. Markets still make money – they guy that wrote that blog. Does he have any suggestions? Say gold, currency, other commodities small companies etc etc. He doesn’t. Good ‘doom’ commentators always are bear on the market. Hence talk about other stocks and investments that are seeked out by a dropping economy. Check out Dr Faber – boom, gloom doom report. He appears to be from the Austrian school of economics.
Gold and precious metals will always and rise in their value against falling currencies and economies.
Check my blog http://morb.wordpress.com/tag/finance-and-economy/
March 5, 2007 at 10:32 pm
I don’t know about his suggestions, but the DOGs and PSQ’s mentioned are interesting way to hedge or play the bear side.
Be careful about assuming gold as a hedge – or at least gold stocks – against a bear market. Typically they have gone down with the market like any other stock, even in the early 80’s when gold had its last big run.
Gold stocks did quite well through the post 911 bear market because commodities and gold were coming off unprecedented lows from the low inflation of the 90’s. It was a different dynamic.
The worst part of bear markets aren’t all that long, so you can create a portfolio of say, good-quality dividend stocks that can do quite well.
I sold out right now because I think the odds are very good for a significant correction, at least the 10% which is the traditional definition.
I think China is still a solid play as well, and I would also consider Australia a good indirect play on China.
You can also always short, more easily so with futures, but I’m not about to suggest futures to the uninitiated. I’ve traded them all – and it’s tough.
You’re right, there are always ways to make money.
Cheers,
Allocator
March 6, 2007 at 12:23 am
I agree. I think the stock market is heading down, I think the ‘correction” will pass below that trading lines that it surged out of. It’s way over bought. I am not really interested in gold stocks, or ones that offer bigger dividends. I also agree on futures trading (being tough), if anything I would go long on gold. At this point.
There was a great article in the Economist recently regarding the large decline in the asset markets worldwide.
I believe the housing market is going to bust worldwide. So before a stock market crash we are going to see a property one, that will be the major drag on the econmies.
Also the loose credit that’s around. Hedge funds also borrowing right? So it will be interesting to see how they handle declining markets. One fund lost big time on oil, they went long, just before oil tumbled down to $50+ a barrel
Do you think a ‘perfect storm’ is forming?
I agree with what you say about china, but Australia (my country) is still in the midst of a severe drought and we have a speculative driven property market that may sharply decline as oppose to the US slower yet’ hard landing’.
It’s been full on. I FX trade, you have mini heart attacks with that.
So, for me, it might be smaller companies – stock market; buy a bunch of diamonds and put them in a safe somewhere.
March 6, 2007 at 7:09 am
FX? You sure like to do it the hard way, don’t you?
I traded it in the futures markets, and never could shake that feeling of being an ant amongst dancing elephants.
One of my motivations to sell last week was not so much that bad news that could drive stocks down, but rather not being able to conceive of anything out there that would, in the current environment, cause stocks to rally and keep going up – at least not for a while.
Either way, its not going to be a straight line. Mutual funds and such have people’s retirement savings – the don’t, or can’t by their charters go into “cash”, so they buy the dips by necessity. But you’re right, of more concern are the loose-cannon “hedgies” out there. You don’t know if and when another Long-Term Capital Management is ready to surface and scare the crap out of everyone.
By the way, I’m in Canada, but lived in Adelaide, SA for 10 years (as a kid).
Cheers,
Allocator
March 6, 2007 at 7:36 am
thanks for the reference! those inverse etf’s are a great asset allocation tool…
March 6, 2007 at 7:46 am
Maybe the fact that world economy is growing well could help markets to recover… Maybe you’ll be left without stocks… Maybe you will regret your choice to sell and not to follow your mentor’s adivice…
But maybe it will be me crying because I am holding…
Hard to be certain about anything in such times!
March 6, 2007 at 4:04 pm
Am I here?
What duck?
Oh, that was the Chinese market.
March 6, 2007 at 5:57 pm
Hey deminvest,
Thanks for dropping by. I’m ALREADY out of stocks – subject to a few small moves I made today. I’ll comment on that in the main blog.
Do I regret my choice? – to an extent yes, actually. Because you are right in that is seems disingenuous (did I spell that right?) advocating a long term perspective, then closing out my positions over a few torpedoes in the wa… – er, markets going bump in the night.
My reasoning (lame excuse) is that at these heights after a long runup, it’s very unlikely my stocks are going to rise and run away from me in the short term. So I have some time to correct the mistake, if it was a mistake. I think the risk-reward right now strongly favours a short-term correction in the market. I have (had, actually) some fairly volatile stocks as well as some blue chips, and I’m basically just betting that I can pick these up at a better price, and/or avoid most of a possible bigger downturn.
Thankfully, this time I can afford to be wrong. The last two years have been good, so worst case it will be an opportunity loss rather than a cash loss (until I buy back in … sigh).
If you have a style you’re comfortable, stick with it. You should never allow someone to convince you to change it (unless it’s suicidal and you don’t REALLY want to lose all your money). My mentor Sheriffe used to go livid if I tried to give him stock advice when I was his broker. He didn’t want his reasoning to be sullied by someone else’s opinion. It worked for him.
Cheers,
Allocator
March 6, 2007 at 6:04 pm
Catdaddy!
I like it. I think I’ll call recent manouevre the Peking Duck. (Basically, it’s where you stick to your plan until you don’t.)
Cheers
Allocator
March 6, 2007 at 6:04 pm
Catdaddy!
I like it. I think I’ll call my recent manouevre the “Peking Duck”. (Basically, it’s where you stick to your plan until you don’t.)
Cheers
Allocator