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>> For the first time in my life, I actually wonder if the powers that
>> be might engineer concerted market closures for a few days or more
>> next week.
b> Funny you should say that because the muses fired that shot across my
b> bow earlier today i.e. a co-ordinated closure of major markets (I
b> didn't follow up on the idea though ... they are always whispering in
b> my ear ... can't keep up with them .. I think it is a wild outsider
b> at this stage).
Inclined to agree. Unlikely, but cannot be completely ruled out,
which is exceptional just for that reason alone.
>>Clearly, this
>> kind of somewhat slow motion but nonetheless huge train wreck is not
>> something that most of us have any experience with. The only
>> salvation here is very small position size. And I mean very small,
>> long or short.
b> It would be good fun if it wasn't for the real people getting
b> hurt ... business friends have done a power of dough in foreign
b> accounts ... just going about their normal international business too.
b> No predictions this week, but for the sake of the discussion - lets
b> look at the plus side:
b> - we just had a classic dead cat bounce, as per the odds for one to
b> occur (better than even)
b> - using the S&P500 as the yardstick... we just made a double bottom
b> with high volatility ... typical of a bottom ... now waiting to see
b> if we go to a new low on the charts cf the nightly news.
b> - fundamentals, like US overall Price/Book, earnings retraction are
b> not at record lows for the modern era so it has been worse before.
b> Also their seems to be a different impetus in the markets ... gold
b> made two recent short term high spikes, correlated to the record days
b> of high emotion etc but now it is on the downward track ... seems the
b> sell off is like a more logical response to the predicted econom,ic
b> downturn rather than panic selling.
b> Also, where esle can the market go when oil is plunging (this is the
b> interesting one ... what is really going on with oil)?
Except at extreme highs, oil seems disconnected from equities.
Several years ago very smart people were saying that if oil reached
40 dollars a barrel, the markets would fall out of bed. In fact,
they did not, even when it reached nearly 150. Now they are, but oil
was not the cause. I think oil would have to get *very* cheap to be
much of a market support. The amount of wealth destruction that is
going on dwarfs any oil price impact, I think.
b> As for trading, why only small positions?
b> Intraday with any amount doesn't carry any more risk than usual ...
b> the exception is overnight holds which are a bit more risky than
b> normal, especially long overnights.
Because velocity is higher and spreads are wider, along with more
volatility. Given a fixed risk limit, you *must* trade smaller in
these exceptional circumstances, or you can blow through your risk
limit. Yes, intraday nimbleness can limit risk to some extent, but
as I say, velocity is higher, and volatility is much greater. You
need to have wider price tolerance because, for example, a 2 percent
move doesn't mean anything right now -- doesn't mean you are wrong
directionally, only that your timing could certainly have been
better. So because 'noise' is much louder, you must scale down size
to keep risk within your normal limits. This seems very elementary
to me.
b> I am not thinking about holding long term bulls just yet though.
b> And there has been nothing wrong with shorting gold/oil/commodities
b> recently ... who knows if that will go on ... it seems to have been a
b> bit overdone already but stranger things have happened.
b> I might have a think about US/Yen and interest rates later.
None of us have any experience here, I think -- talking about the
present macro and market conditions. This is a worldwide destruction
of value perhaps unprecedented in scale. It is beginning to get
uglier than my absolute worst-case and low-probability (I thought)
scenarios, which were a bottom right around these levels. The Nikkei
is already well through the 9,000 that I thought was low probability
but not impossible, and likely to hold if it came to pass. I think
this current mess makes LCTM and the Asian crisis look almost
comically tame.
Six months ago, I reckoned I'd be buying with both hands at Nikkei
9,000. I haven't, and I can't say I feel much different at 7,700.
But my philosophy has always been to wait until the knife not only
hits the floor, but stops quivering.
Dow 2,000 or lower? Low probability, I'm sure. But I can't say
impossible right now. And that really surprises me.
We could be approaching a selling climax here of course. A
meaningful bottom. But gee, we've had quite a number of selling
climaxes recently. Except that they weren't. As for this "double
bottom" ... I'm calling it meaningless until I'm proven wrong.
There's only air under this thing right now, no technical support at
all. This plays out over years, I suspect, and the bottoms will have
to have months, maybe even a year or more, of separation. How about
a nasty bottom this year, followed by another nice bear market rally
beginning mid-year next year, then followed by a long and painful
rollover in 2010, leading to the second bottom. Dow 14,000 again? I
hope I live to see it, because it looks years away right now. Lots
of years, perhaps. Hope I'm wrong of course.
Yuki
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