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blazespinnaker
07-25-06, 12:15 AM
Further prediction: assuming no more significant geopolitical shocks, markets will continue to go up.

Yes, have to say, I'm thinking about turning in my bear market badge.

The recent pullbacks have all been all geopolitical all the time. I am even beginning to question if Bernanke was really even a factor.

While I still feel that bernanke needs to continue to hike the interest rate to deal with inflation caused by oil and higher rents caused by a slowing housing market, I have a feeling that the economy is going to continue to move a long, at least enough for the market to track inflation.

Globalisation and productivity are pretty high, so I don't see a bear market ahead, except one caused by geopolitical shocks or global warming weather shocks. These are real possibilities, not to be discounted, but are external to our financial system.

Does this mean things are good? No, it is the American Dream, stupid. The new new economy is screwing over joe six pack and the lower middle class - most definitely. But, that's capitalism for you, and George Bush is definitely trying to defend the free market system, so we shouldn't be suprised.

Are markets going to rise quickly? No. Globalisation has a negative side as well, which is fierce international competition which will keep margins lower than expected ... not to mention a slower housing market will reduce the number of heloc jocks and therefore consumer spending. But does this mean a recession? I don't see it. Not unless a fannie mae or a freddie mac or oil spikes, which I don't see as a huge probability, though I suppose it could happen.

Where does this leave us? I think I'm going to stay all in cash for now, perhaps buy some gold options (not a lot) as portfolio insurance and wait for a shock of some kind, though I suspect the more likely outcome will be a hit on my portfolio due to inflation as the economy muddles through.

blazespinnaker
07-25-06, 12:18 AM
Prediction II: bernanke will pause in August and the chinese will buy treasury bonds to keep the dollar stable.

jk
07-25-06, 08:08 AM
i'll take the other side of that bet, blaze. i think the economy has been overly dependent on housing both to support consumption and to provide jobs. iirc about 1/3 of new employment in the last few years has been housing related. i don't know whether the slowdown we're entering will qualify as a recession [if you define inflation in a way to keep it "officially" low, then low nominal growth may still avoid looking like contraction]. but i think u.s. equity markets are going to get hit by the end of the year.

if you really think markets are going to go up, why aren't you invested that way?

blazespinnaker
07-25-06, 05:09 PM
% wise I am 65/35 that markets will go up/down.

However, i think the downside is huge though the probability of it happening is significantly less.

Put another way: It's kind of like 65% the market will go up 10% and 35% the market will go down 30%.

Therefore if I had to bet which way, I'd predict that the markets will go up yet the expected value is negative (-4% expected growth = 6.5% - 10.5%)

I know, it sounds weird, but I'm pretty confident that this is the proper outlook to have in this market.

blazespinnaker
07-25-06, 05:39 PM
And, yes, I'm thinking about purchasing options which better reflect this perspective, though I am generally uncomfortable with the volatility associated with options.

Jim Nickerson
07-25-06, 10:27 PM
% wise I am 65/35 that markets will go up/down.

However, i think the downside is huge though the probability of it happening is significantly less.

Put another way: It's kind of like 65% the market will go up 10% and 35% the market will go down 30%.

Therefore if I had to bet which way, I'd predict that the markets will go up yet the expected value is negative (-4% expected growth = 6.5% - 10.5%)

I know, it sounds weird, but I'm pretty confident that this is the proper outlook to have in this market.

blaze,

If what I am ferreting out of your comment is correct, then on a contrarian basis (based on what I read), right now you may have your bets well placed. That your bets may be on the correct side of how things unfold also may be well based technically if judged by the RSI's, MACD's on the RUT, NDX, SPX, DJI, and VGY--indices at which I usually look. Were bearish comments not so rampant and if I did not buy into this bearishness, I would be long these indices on a technical basis, and it is the preponderance of bearishness that scares me about being short in view of good technical pictures.


Therefore if I had to bet which way, I'd predict that the markets will go up yet the expected value is negative (-4% expected growth = 6.5% - 10.5%)

Probably to most of our readers your statement makes perfectly good sense, but to me it makes no sense. You must be talking about two different things, and it is not clear to me as to what is the second thing--I guess the second thing is economic growth, but so what if growth is negative if the markets go up?

If as you bet "the markets will go up," then I cannot envision how going up will yield an "expected value [which] is negative." If you have moment could you clarify what you wrote.

blazespinnaker
07-25-06, 11:33 PM
well, i multiplied the probabilities.

65%*10% means that it has a 6.5% upside, and 35%*-30% is 10.5% downside.

If someone were to ask me - is the market going to go up or down, I'd say up. If someone were to say how much, i'd say -4% :)

Jim Nickerson
07-26-06, 01:03 AM
well, i multiplied the probabilities.

65%*10% means that it has a 6.5% upside, and 35%*-30% is 10.5% downside.

If someone were to ask me - is the market going to go up or down, I'd say up. If someone were to say how much, i'd say -4% :)

You thought process is interesting, but the most I can make of it is that if you are 65% long, and 35% short, your greatest expectation is to lose minus 4% of what you have invested. I presume I have that correct, then over what period of time are you looking for your positioning to play out? By when do you expect to be down 4%? If you expect to lose 4%, why not be back in cash?

blazespinnaker
07-26-06, 08:00 PM
You thought process is interesting, but the most I can make of it is that if you are 65% long, and 35% short, your greatest expectation is to lose minus 4% of what you have invested. I presume I have that correct, then over what period of time are you looking for your positioning to play out? By when do you expect to be down 4%? If you expect to lose 4%, why not be back in cash?

I actually have remained in 90% cash (well, 4.25% 30 day bankers acceptance which I can pull out at anytime with no penalty)

My time horizon is over the next two years.