Below you will find eleven of the most popular cocktail party requests, if you mingle in the upper circles of society. I receive my share of invitations but have to turn them down because I reside on a remote island in the south pacific. Yet, I do share a common link to each of the individuals listed below. Based on my market observations and research in September 2007 I sent out a client advisory that called for a 40% decline in the stock market. I did so just weeks before the major top in October, 2007. While my forecast was modest in hindsight, it was right on the money in terms of timing plus the advisory pointed out trading strategies and concepts to use. The real time results from our trading strategies for 2008 stand up to this fact, which are available on request.
Here is a link to both of my comments, you can read for yourself.
Monday, September 03, 2007, 7:41:54 PM
Wednesday, September 26, 2007, 10:02 PM
This is just not about me – I am not looking for anymore cocktail party invitations. Rather it’s about where the market is going now, what markets are the better ones to trade, which should be exploited with long volatility strategies or where you should use option writing methods or what you should do about your investments. As a trader you need to know which way the wind is blowing because you can always adjust your sails to make it to your destination. On page 3 of our 9/3/07 letter we said:
“As investors this is your Test Match and there are some very serious questions being asked of you!
1. Should you hedge your portfolio and what is it going to cost, in other words what is the potential risk, if I do?
2. Is a fair portion of your wealth in stock equity investing, “what would you do after a decline like ‘87, when a bear market process gave you up for 40%? Would you be willing to wait 8 to 10 years to get back to a profit?
3. How about after the 2001 low when losses ran 40 % and on the then popular NASDAQ down 60%. Would you be willing to hold stocks, double down and hold on until today only to face on the majority of stocks a partial recovery or at best, a break even in 2007?
4. Was the bull market of 2006-2007 one of the narrowest advances in history where you saw few, if any, of you stocks participate?
5. Does hedging here provide you with an alternate means of recouping the profits given up in 99-2001 plus the opportunity for profit with a trend following system that will go short the stock index futures?
Today, after a bear market bigger than 1973-74 and if you still have any doubts what you should have done, if you have not learned how to be a big swing trader, if you have not found a way to hedge by investing in a portfolio of futures trading systems, maybe you should leave your funds in a local bank CD in your country’s own currency.
Here is the list of 11 in no particular order (Jessica Silver Greenberg, 2010) Busienssweek/Bloomberg:
An obscure New York University professor named Nouriel Roubini, aka Dr. Doom, became a headliner on the international conference circuit, attracting actual groupies. As early as 2004, Roubini, now 52, predicted an imminent recession caused by yawning U.S. trade deficits and a spike in oil prices and interest rates. It didn’t come. In 2005 he again called for a recession
David Rosenberg (49), chief economist at Gluskin Sheff.
One of the most famous of these extremist outsiders is Robert Prechter (61). In the 1970s he revived an old system of measuring investor psychology called the Elliott Wave Principle.
Money manager Peter Schiff (47) was born an outsider—his father was a famous tax objector who is serving a lengthy sentence in an Indiana prison. Schiff had a book on the shelves (Crash Proof: How to Profit from the Coming Economic Collapse) when the financial panic struck.
Nassim Nicholas Taleb, (49) In 2002, Malcolm Gladwell profiled Taleb in The New Yorker, focusing on his investment in cheap, out-of-the-money options, betting that the market underestimated the likelihood of crashes. Then he shot to stardom with the publication of The Black Swan: the Impact of the Highly Improbable in May 2007, which extended his critique of risk management on Wall Street. Taleb argued that the models used to measure and contain risk were inherently flawed because they did not—and could not—take into account the existence of black swans, or unpredictable, potentially disastrous events.
Marc Faber, who publishes the Gloom, Doom and Boom Report from his home in Hong Kong, Since 2002 the 64-year-old, Zurich-born economist has been predicting that the dollar would plummet in value, and since 2005 that an economic meltdown was about to hit the U.S.
Gary Shilling, (73), Shilling holds to the view that recovery is a mirage whipped up by government stimulus, that the economy is held in check by declining home prices and contracting credit.
Stephen Roach (64), chairman of Morgan Stanley Asia. (He is now returning to New York, where he will split his time between Morgan Stanley and teaching at the Yale School of Management). “It’s never easy, especially when you are working on Wall Street, especially when there is an awful lot at stake for the good times to continue,” he says. “It’s one thing to be an academic who can make points purely for academic purposes. It’s energizing to think and rethink your position.”
Meredith Whitney (40) as an analyst for Oppenheimer …put out a research report with the seemingly innocuous title, “Is Citigroup’s Dividend Safe? Downgrading Stock Due to Capital Concerns.” The conclusion, however, was jarring: Unless Citigroup raised $30 billion by chopping its dividend or quickly unloading assets, Whitney opined, it would surely fail. Citi’s shares promptly swooned, and within days the bank’s CEO, Chuck Prince, resigned.
Jeremy Grantham, 71-year old head of Grantham Mayo Van Otterloo, trotted out his negative predictions to much public ridicule at the 2006 meeting of the IMF in Davos.
James Grant, the 63-year-old publisher of Grant’s Interest Rate Observer. (June 29, 2010 he is only one of the above forecasters that has become bullish)
In the face of all the doom and gloom from our 11 super bears, commerce continues, gold is trading above 1,000.00 an ounce USD, the average weekly range in crude oil in money terms is better than $2000, food commodities continue to trade near historical levels, plus foreign currencies both futures and FX are experiencing large trends. This non exhaustive list just presents a few alternative opportunities for you to take advantage of, as opposed to “flipping” real estate or screening thousands of stocks to bull trade.
There are several important points you can pull from all of this. For starts, we all have a tendency to trade what is the familiar or what is touted in the news media: like stocks. We all think we know so much about stocks that we can beat the market at its own game. Rule number fifteen, just because the market is familiar, does not increase your chances of making a profit compared to a market you are not familiar with. As the poet said: “A rose is a rose is a rose.” The market that make the price in soybeans have the same elements as the market that make up stocks, we call it human nature.
The other key idea you can pull from all of this is – rule number 22 – that an “optimist is more successful at trading.” You see “Even the most sophisticated people” like the ones listed above, “have difficulty switching world views, especially after their views have been affirmed.” Most of them have missed the “big bounce” of the last 12 months among many other market opportunities.
In other words they become dogmatic for whatever reason – maybe they enjoy being invited to the cocktail parties. But what I have witnessed regarding these so called Guru types is their “Outlooks tend to be fairly deeply ingrained,” and they will not change.” Even, if it means that they and their clients completely miss decades of bull market and other trading opportunities.
The reasons why optimists have a greater amount of success investing and trading is that they make opportunities out of difficulties. “Pessimists will pay attention to information that is punishing, not rewarding, and that’s their fundamental outlook.” They will see nothing else. Optimist looks for opportunities no matter which way the wind is blowing.
I certainly do not argue against the bearish predictions – I was part of that group. Another thing I share with them is years of experience. The average age of our 11 Seers is 57 ½ (yours truly being above that average). However, I have also learned that each new generation’s “youth will be served”. That includes more than the generations, x, y and z it also includes the new generations of economic powers called BRIC (for Brazil, Russia, India and China). So while the elite list of eleven may have seen the change, it’s not too late for anyone to find a reasonable risk in order to make a profit. “Nobody can go back and start a new beginning, but anyone can start today and make a new ending.”
Jack F. Cahn, CMT
TraderAssist®
