b> Also, where esle can the market go when oil is plunging (this is b>the b> interesting one ... what is really going on with oil)?
You said: "Except at extreme highs, oil seems disconnected from equities. Several years ago very smart people were saying that if oil reached 40 dollars a barrel, the markets would fall out of bed. In fact, they did not, even when it reached nearly 150. Now they are, but oil was not the cause. I think oil would have to get *very* cheap to be much of a market support. The amount of wealth destruction that is going on dwarfs any oil price impact, I think." What I am saying is that some markets, especially the influential US and UK, were overweight on energy stocks (their cap value has been running up and up with previous oil price raise) and now that plug has been pulled immediately after a rundown in Financials, which were also previously overweight. The US has taken an additional hit because of its 'exposure' to mining stocks. Australia is another example their where Financials and Commodities, which were both at the top of the leader board, took a hit at the same time ... since stocks in those sectors are +vely correlated to energy/commodotie prices, they had to go down (a second wave of market falls?). BTW I meant to say Japan has been running current account surpluses and is a net exporter capital. brian_z --- In [email protected], Yuki Taga <[EMAIL PROTECTED]> wrote: > > > >> For the first time in my life, I actually wonder if the powers that > >> be might engineer concerted market closures for a few days or more > >> next week. > > b> Funny you should say that because the muses fired that shot across my > b> bow earlier today i.e. a co-ordinated closure of major markets (I > b> didn't follow up on the idea though ... they are always whispering in > b> my ear ... can't keep up with them .. I think it is a wild outsider > b> at this stage). > > Inclined to agree. Unlikely, but cannot be completely ruled out, > which is exceptional just for that reason alone. > > >>Clearly, this > >> kind of somewhat slow motion but nonetheless huge train wreck is not > >> something that most of us have any experience with. The only > >> salvation here is very small position size. And I mean very small, > >> long or short. > > b> It would be good fun if it wasn't for the real people getting > b> hurt ... business friends have done a power of dough in foreign > b> accounts ... just going about their normal international business too. > > b> No predictions this week, but for the sake of the discussion - lets > b> look at the plus side: > > > b> - we just had a classic dead cat bounce, as per the odds for one to > b> occur (better than even) > b> - using the S&P500 as the yardstick... we just made a double bottom > b> with high volatility ... typical of a bottom ... now waiting to see > b> if we go to a new low on the charts cf the nightly news. > b> - fundamentals, like US overall Price/Book, earnings retraction are > b> not at record lows for the modern era so it has been worse before. > > b> Also their seems to be a different impetus in the markets ... gold > b> made two recent short term high spikes, correlated to the record days > b> of high emotion etc but now it is on the downward track ... seems the > b> sell off is like a more logical response to the predicted econom,ic > b> downturn rather than panic selling. > > b> Also, where esle can the market go when oil is plunging (this is the > b> interesting one ... what is really going on with oil)? > > Except at extreme highs, oil seems disconnected from equities. > Several years ago very smart people were saying that if oil reached > 40 dollars a barrel, the markets would fall out of bed. In fact, > they did not, even when it reached nearly 150. Now they are, but oil > was not the cause. I think oil would have to get *very* cheap to be > much of a market support. The amount of wealth destruction that is > going on dwarfs any oil price impact, I think. > > b> As for trading, why only small positions? > b> Intraday with any amount doesn't carry any more risk than usual ... > b> the exception is overnight holds which are a bit more risky than > b> normal, especially long overnights. > > Because velocity is higher and spreads are wider, along with more > volatility. Given a fixed risk limit, you *must* trade smaller in > these exceptional circumstances, or you can blow through your risk > limit. Yes, intraday nimbleness can limit risk to some extent, but > as I say, velocity is higher, and volatility is much greater. You > need to have wider price tolerance because, for example, a 2 percent > move doesn't mean anything right now -- doesn't mean you are wrong > directionally, only that your timing could certainly have been > better. So because 'noise' is much louder, you must scale down size > to keep risk within your normal limits. This seems very elementary > to me. > > b> I am not thinking about holding long term bulls just yet though. > > b> And there has been nothing wrong with shorting gold/oil/commodities > b> recently ... who knows if that will go on ... it seems to have been a > b> bit overdone already but stranger things have happened. > > b> I might have a think about US/Yen and interest rates later. > > None of us have any experience here, I think -- talking about the > present macro and market conditions. This is a worldwide destruction > of value perhaps unprecedented in scale. It is beginning to get > uglier than my absolute worst-case and low-probability (I thought) > scenarios, which were a bottom right around these levels. The Nikkei > is already well through the 9,000 that I thought was low probability > but not impossible, and likely to hold if it came to pass. I think > this current mess makes LCTM and the Asian crisis look almost > comically tame. > > Six months ago, I reckoned I'd be buying with both hands at Nikkei > 9,000. I haven't, and I can't say I feel much different at 7,700. > But my philosophy has always been to wait until the knife not only > hits the floor, but stops quivering. > > Dow 2,000 or lower? Low probability, I'm sure. But I can't say > impossible right now. And that really surprises me. > > We could be approaching a selling climax here of course. A > meaningful bottom. But gee, we've had quite a number of selling > climaxes recently. Except that they weren't. As for this "double > bottom" ... I'm calling it meaningless until I'm proven wrong. > There's only air under this thing right now, no technical support at > all. This plays out over years, I suspect, and the bottoms will have > to have months, maybe even a year or more, of separation. How about > a nasty bottom this year, followed by another nice bear market rally > beginning mid-year next year, then followed by a long and painful > rollover in 2010, leading to the second bottom. Dow 14,000 again? I > hope I live to see it, because it looks years away right now. Lots > of years, perhaps. Hope I'm wrong of course. > > Yuki >
