Wed 29 Aug 2007
These Markets Are Scary, Why You *should* Be Afraid
Posted by RichSlick under Watch Out
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There are perennial cheerleaders in the finance world. Normally, the perennial cheerleaders are those people that have a direct interest in keeping YOU buying in any market: good, bad, flat. Why? Because they make money when you buy by charging you fees, commissions, and other charges that siphon money out of YOUR account into THEIRS. It’s no surprise that in these scary times the cheerleaders come out with comforting words such as, “over the long haul, stocks earn 10% so you should keep buying.”
Where do you find these perennial cheerleaders: “Financial Advisers”, “Mutual Funds Vendors”, “Financial Planners”, et al.
Of course, when the market tanks these guys disappear along with your money.
Why should you be afraid? Let me lay out my case why I don’t believe stocks will return anywhere near 10% over the next 6 to 10 years much less 10 to 30 years.
Ladies and Gentlemen of the jury, I’d like to submit my first witness for questioning, Mr. David M. Walker. My witness has impressive credentials as US Comptroller for the United States Government
http://www.youtube.com/watch?v=KGpY2hw7ao8
Ladies and Gentlemen, that was some frighteningly honest testimony. I now would like to present my second witness for the prosecution, Mr. Ben Bernake. Your honor, I’d like to treat Mr. Bernake as a hostile witness.
“Mr. Bernake, did you not recently allow several banks to relax its debt collateral rules, allowing borrowers to use distressed debt as collateral to raise emergency funds?” Answer: yes.
“Mr. Bernake, haven’t you injected $130 billion into the banking system to attempt keep the credit flowing to various markets?” Answer: yes.
“Mr. Bernake, aren’t these banks with so many problems hiding billions in losses that we have yet to discover?”
Answer: none.
Ladies and Gentlemen of the jury, I will no present my most damning evidence next. I point you to the peculiar options trading speculation found here http://finance.yahoo.com/q/op?s=SPY
It would appear that a BILLION is being bet on a falling market. If you look at the chart, I count over 132,000 contracts averaging a strike price of $77 with an estimated value of $1,000,000,000.00. Ladies and Gentlemen, I’m not a fancy city boy but it looks to me like somebody out there knows something we all don’t know.
Ladies and gentlemen, if you don’t find for the prosecution, I will be forced to pull some cards from the bottom of the deck. What say you jury? Guilty or Not Guilty?
I await you decision late in the evening tomorrow.
August 29th, 2007 at 9:08 am
If the market are so doomsday they, then oh well. The money we are carrying around won’t be worth anything. If that video was entirely accurate then there is really nothing we can do. If the stock market will not give a 10% then people will put their worthless money someplace else. Are you suggesting we invest in things that are useful in a collapsed economy, such as guns, ammo, and batteries?
August 29th, 2007 at 9:52 am
The world won’t come to an end, it will just change: think third world country.
We’ve already seen some previews: Katrina Fiasco, Collapsed bridges, Blown up steam tunnels, etc. The infrastructure decays, the burgeoning burden on health care because of an aging population are dramatically changing the US; guns, ammo and batteries won’t change anything.
What I am advocating is an investment strategy that will afford you the opportunity to relocate somewhere else if you want to escape third world status. People seem to forget that almost EVERYONE in the US was an immigrant or descendant of an immigrant from a couple of hundred years ago. Our ancestors fled poverty to build something new and wonderful. I think we’re getting close to seeing that “wonderfulness” run it’s course.
It’s a cyclical thing from the Roman Empire to the Spanish Empire, followed by the British Empire onto the American Empire. All of them rose and all of them fell. When these empires fell, people didn’t die or revert to total anarchy, their standard of living simply dropped.
No, I don’t want to see this happen but our society is so apathetic about the whole thing that it will probably happen.
The new empire arising is coming out of the East (Asia/China/Japan) and unless something changes, that is where the big money will flow to, investment, quality of life, etc.
August 29th, 2007 at 1:26 pm
Hey Slick, do you own those ETFs you have on your page or do you short them all? I own OIH
August 29th, 2007 at 1:48 pm
All of those ETFs are in my software program but I don’t currently own anything. I’m sitting in cash until after the Fed meeting (Sept. 18).
After the Sep 18th meeting, the next FOMC isn’t until October 30th so I’ll be back in play without fear of the Fed skewing the markets.
My favorite ETFs are: OIH, GDX, EEB, USO, UNG. I’m not short or long on any; just cash for now.
August 30th, 2007 at 11:58 pm
Pardon my ignorance, but I’m a little confused. When you purchase an in-the-money call, how is that considered a bet that the security will fall? Won’t the call be worth LESS if the security tanks?
To make money on the falling security, wouldn’t you have to buy not-in-the-money PUTS instead…?
August 31st, 2007 at 9:17 am
This is a two-sided equation with many different permutations.
Scenario 1. You own 10,000,000 shares of SPY and you want to maximize the profit from these shares and GUARANTEE that they’ll sell, how would you do it? Sell DEEP in the money calls.
Scenario 2.
Now, you want to cash in from a crash by buying very low. You just happen to know that something bad is going to happen, not sure when but before Sept. 21. How do you do it? Buy deep in the money calls at a low strike price. When SPY drops from 148 to 65, you swoop in and buy up everything. A few months later, SPY jumps back to 120 and you profit.
You could do the same thing with PUTS but as so many people have pointed out, this little trick doesn’t work because thats EXACTLY what happened on 9/11 with Airline stocks. Someone (never revealed who) bought massive amounts of puts on AA, United.
http://911research.wtc7.net/sept11/stockputs.html
I guess it would be too obvious for terrorist to buy 100,000 contract puts on SPY.
I don’t have any idea if this is terrorism, housing panic, market panic or something else, the only thing I am sure of is that this is WEIRD and the last time it happened was on 9/11 and the LTCM failure in 98 -neither of which bodes well for the markets.
http://en.wikipedia.org/wiki/Long-Term_Capital_Management