The Credit Crisis Financial Stocks Short Journal
- Thread starter Daal
- Start date
Erm, I think we know how these games normally end... I don't think there's anything they can do here, apart from convincing the mkt that they'll be able to do what's necessary.
There is an interesting section on Invisible Hands where 'The Researcher' said some of the stock boom from 2003 to 2007 and 1925 to 1929 was the result of tax cuts in the upper income area. He calls them the 'investing class', with more money in their pockets they helped to push the market higher than it would otherwise go
This is interesting because the administration will try to counter the expiration of the Bush tax cuts by tax cutting/crediting lower income people so they only gradually decrease the deficit, this will hit the investing class nonetheless.
I dont know if this theory has strong empirical validity besides his two examples(which might not control for the fact that stocks are upwards biased anyway) but it could be another bear factor for the stock market
This is interesting because the administration will try to counter the expiration of the Bush tax cuts by tax cutting/crediting lower income people so they only gradually decrease the deficit, this will hit the investing class nonetheless.
I dont know if this theory has strong empirical validity besides his two examples(which might not control for the fact that stocks are upwards biased anyway) but it could be another bear factor for the stock market
The issue with this theory is that flow of money to an asset does not necessarily impacts its equilibrium to a large extend. We are seeing that right now with the Swiss Franc that keeps rising despite CB intervention. We could have seen on the crash last week, where a large ES seller crashed the market(at least, thats one theory) yet buyers come out and equilibrated the price.
What the flow arguments dont take into account is the additional flows that will arise from large changes in price. So even if the rich gets taxed more heavily the impact could be only marginal.
This could be different in situations where the intervention is so large it could actually creates a shortage. The Fed more or less produced that effect in the MBS market by taking tons of securities away from the market leaving whats left to be bid up by the private sector looking for safety but thats a special case
What the flow arguments dont take into account is the additional flows that will arise from large changes in price. So even if the rich gets taxed more heavily the impact could be only marginal.
This could be different in situations where the intervention is so large it could actually creates a shortage. The Fed more or less produced that effect in the MBS market by taking tons of securities away from the market leaving whats left to be bid up by the private sector looking for safety but thats a special case
If you are a trader or run a fund, being *that* early is functionally equivalent to being wrong.
Exactly, timing is everything. More to the point, it irks the hell out of me when media pundits congratulate themselves for having called for x, y, z rally or declines after the fact. Never a mention about the specifics of whether they were 5, 10, 15% early or late, they are never ever wrong in hindsight.
But that risk is there whether or not you put in your full position immediately, or wait for a rally to put on your full position. In both cases, once you have on a full position, you have that same 100 basis point (e.g.) correction risk.
Waiting for price action to go your way will mean you wait for people to start recognising what is happening. But if you are right, that is going to happen anyway. And if you are wrong, it won't. So I'm not sure what edge you get from it. Remember, you aren't trading technically here, you aren't saying "I'm buying Aussie rate futures here because they are in an uptrend", you are making a bet on an economic development. In that case, the best risk/reward exists at the time where the market least expects that economic development to happen, not at the time that it starts pricing in a significant probability of it happening.
A good example is the Euro. The best risk/reward was at 1.45, 1.50, when people were still expecting a weaker dollar, and were overlooking the sovereign debt risks in the Eurozone. Now at 1.23 the upside is 20-25 big figures less, and the risk is at least as much (we just had a 5 handle move in 2 days, whereas at 1.40-50 it took a week or two to move that far).
For fundamentally-driven trades, waiting for a trend to get going results in higher risk and lower reward, and doesn't in any way improve the probability of you being right about the ultimate outcome - every time the market "starts rallying" it could just as likely be a short-term blip in a long trading range, or even a sucker rally before falling back down. Now if you are using a trend-following system with a close trailing stop, it's a different matter. But that is a technical system not a fundamental one. And it substitutes one risk for another - you adopt the risk of ultimately being 100% right, but losing money by being stopped out 3 or 4 times in a row on short-term pullbacks.
He made over a billion on the trade. He was right. Also, his overall fund (Pershing Square) made money during the entire time the MBIA trade was underwater. You could make the arugment that the MBIA short was an excellent hedge for the rest of his fund, which was long equities. When the long part of the fund turned down in 2007-08, his MBIA short much more than made up for it. He was right. Anybody who says differently is making an ass out of himself.
Let's just say I disagree. I'm looking for a move of several hundred basis points. I'll have plenty of time to add to the position at favorable prices. This isn't an option trade. I can't just purchase a boatload of futures positions, put them in a drawer for a year, and see how everything looks 12 months from now. This will have to be actively managed. Read Kovner, Robertson, Soros, Drukenmiller - these guys establish a small position to start, but do not go for the jugular until they see things moving their way. I remember the description of Robertson buying C in 1990 - he put on a small position at 10. Once it hit 20, he bought everything in site, figuring that at 10, there was still a chance it could go to 0, but at 20 that risk had passed.
Your euro comparison isn't valid. I'm not talking about going all-in after a massive move in my direction.
Based on your criticism of Ackman's MBIA trade, one might conclude that you have a bit of a twisted view of the business.
