It is tough to tell but the green in the picture is the Green Monster at Fenway. The clay color is the left field warning track. I took the picture from the top of the wall--its a long way down.So from the I'm not sayin' I'm just sayin' file; a quick word in case we all get a reminder over the next few days about how trading curbs and circuit breakers work....
The news about Fannie and Freddie kicked up a notch obviously and we have a potentially long two days of just waiting.
The market action of the last many months has been a normal bear market process--scary news, various moves downward a feel good rally and so on. If there is a violent move down, IE a crash, well first it can't be 20% in a day because the market will close before that happens. The modern day equivalent of 20% in a day might be 20% over two or three days.
Panics snap back. This is a just how the market works type of thing. A panic and snap back can occur in a bull market (like 1997 Asian contagion or the 1998 LTCM/Russian debt default) or in a bear market like last January in le affair du Kerviel (hey, I took Spanish in school).
If we were to see a big panic I would close out my double short position as I did in January. At this point I do not know if after closing SDS out I would get more long right away, which I did not do in January or when I would buy SDS back (on the Kerviel trade I bought it back later that week) but the point is I have the first step of a plan in place before anything happens. The rest depends on what the market were to give in that scenario.
A plan could include doing nothing, depending on the appropriate thing for an individual but deciding ahead of time that "since selling is not right for me, I will not panic along with the market" is a valid course of action.
Lastly a reader follow up question about why I think a bailout of Fannie and Freddie would weaken the dollar. Not to get too jargonny or sophisticated, lol, but one problem with the dollar is no one wants to hold it.
Plenty of places have to hold the dollar but they don't want to. I saw one thing early today, maybe from Yves, that opined that bailing out the GSEs would double the US' debt. I don't know if that is accurate but obviously the US' debt load would skyrocket. Further indebtedness (we are talking a lot more than Dr. Evil kind of money), everything else being equal, is bad for a currency.
This leads to another comment I made yesterday (far from an original thought I might add) but at what point does the dollar get defended by anyone? I don't know as I'd have liked to have thought it might have started by now. At some point interest rates should go up, this is how markets work--of course this sentiment has been wrong for a while.
All of this creates the environment I have been writing about for ages which is weaker growth and higher rates. This is not apocalyptic but it makes the case for the US being a less attractive investment destination than other countries as has been the case for most of the naughties, or if you prefer, the oughts.
8 comments:
The sky will not fall if fannie and freddie go under. They have 5 trillion in debt from what I read. How much would the government loose? 5%?, 10%?, more?
over a few years that is easily affordable.
still I prefer cash to equities and think we have a long deep decline coming
Roger,
I saw your nice article on PMNA over at TheStreet.com. I did a comparison between it and TRMAX:
http://www.bogleheads.org/forum/viewtopic.php?t=20436
They appear to be pretty close with PMNA being less expensive.
roger - ever think about writing a book?
the sector weightings being so similar is very interesting.
of course there is no way to know what TRAMX will own six months from now. also being underweight Kuwait has probably been a drag.
Book? I don't have one in me I don't think. The writing I do now fits in with my day job.
I don't think a book would alsoany book i might spit out would just be a rehash of every thing else.
Roger,
Don't write a book!
The work of a blogger is to stay loose and keep going; writing a book means "being certain about what you are saying" since once that page is printed, it is there forever. (Archived blogs notwithstanding, for the most part readers want to know what you are going to say today and tomorrow, not what you said yesterday.)
Besides, unless it's an ebook, where would you put the pop-up ads?
The "too big to fail" thesis may be tested this weekend. The revised thesis is "Too big to fail (but not really)(except for some institutions that we think could cause an "avalanche")".
Based on how puts and calls were pricing in the last hour, I'd say its anyone's guess where we open on Monday...
R in NY
Of course, now IndyMac has finally slipped under the waves....the open on Monday should be VERY interesting. FWIW, I raised the limit on my sell SDS, GTC, the other day. IF it gets triggered, I'll be content to sit on the cash until things shake out, and suffer the damage to the rest of the portfolio.
jan
Some of our more inexperienced investor have likely learned a valuable lesson warhorses have lived through. The market non-forgiving in a bear scenario. And non-forgiving to greed, unless you happen to be a well-situated CEO.
Time heals all markets. The difference now is that investors have an entire world of securities to screw up with.
Like watching my dog chase his tail.
T
I have learned a ton about investing from this blog. I think a book including some of these ideas would be useful for personal investors. You should consider it...I really think some of your ideas would be helpful for us do it yourself investors.
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