Tuesday, October 6, 2009

It's Me, Your Resident Permabear

Do I still have a bit of egg on my face because of THIS post? Sure. I'm in great company though, and still believe the stock market will catch up to the real world economy soon enough. Here are some links to articles and quotes from so-called experts, all pretty much singing the same tune: There will be no V-shape recovery. Make sure you scroll to the bottom for 'Signs of Being a Permabear' :-)

“There’s a lot of risk going ahead of some big bumps. There’s a very big risk that markets have been irrationally exuberant.”

-Nobel Prize-winning economist Joseph Stiglitz

  • George Soros says the U.S. banking system is "basically bankrupt," in sharp contrast to Goldman's upgrade of the large banks.

  • Nouriel Roubini says "markets have gone up too much, too soon, too fast," and will retreat when economic news refutes the V-shaped consensus, Bloomberg reports.
  • Joseph Stiglitz told Bloomberg TV investors have become "irrationally exuberant" about prospects for a recovery. "There's a lot of risk...ahead of some big bumps." Current Roubini post HERE!

  • Christopher Whalen tells Tech Ticker the fourth-quarter will be a "bloodbath" for banking as says stocks rallying while the "real economy is dying" is not a healthy sign.
  • Meredith Whitney warned about the likelihood of a second credit crunch, especially for small businesses, a WSJ op-ed last week.

10 Signs We May Be Headed For An October Crash
Click on Signs to Read More

You Know You are a Permabear When…

Each time the market rallies, you declare it an “unhealthy sign of speculative excess”

The great majority of chart patterns always appear to be either rallies in a bear market or an imminent major top.

CNBC asks you to appear as balance to the optimistic Bull guests.

Good economic results are bad for the market – it will cause the Fed to keep raising rates; bad economic results are bad for the market -- its proof of the coming recession;

Sideways moves are actually just “setting up the market for the next down leg

You still rail against Nixon for taking the US off the gold standard;

Your colleagues think you should become a fixed income portfolio manager.

All the anecdotal evidence you see reveals excessive bullishness;

You have trouble sleeping when you take a long trade.

1. On days when gold prices drop, it's due to a government conspiracy;
2. When gold prices rise, it's because central banks have finally lost control of manipulating the gold market. Either that, or the masses have finally figured out their fiat currency is just paper.
3. If gold drops again the next day, see #1.

When companies make quarterly earnings estimates, its bad because a) its already built it, and b) its evidence of earnings management. Missing earnings, on the other hand, is bad, because, well, its bad.

You criticize any analyst that upgrades a stock from “Strong Sell” to“Sell”

The Yield Curve Inversion is a sure sign of the coming recession; As the inversion flattens, however, you note out how negative higher 10 Year Yields are for stocks;

Positive market commentary is evidence of “complacency” and proof that the market must go lower;

Any 10% rise in an stock is a “great shorting opportunity;”

You blame market rallies on ignorant bulls “who just don’t understand;”

You short anything that is in your parents' retirement portfolio – and are determined to outperform.

Special Thanks to Yahoo Finance, bloggingstocks.com, and bigpicture.typepad.com for content.

Friday, October 2, 2009

Trading Like 007

If you remember THIS post, you know I'm intrigued by the spy genre (borderline 'obsessed' around the time a new Bond film releases). While watching the newest 007 installment, Quantum of Solace (for the second night in a row...really, what's wrong with me?), I couldn't help thinking about how his life relates to stock trading. In almost every adrenaline-filled, pulse-accelerating situation, his training seems to summon 3 distinct reactions: He looks before he leaps, takes calculated risks, and always protects his assets.

Look Before You Leap

There are countless scenes, especially with the new, physical Daniel Craig, where Bond has to make a split decision. The consequence of that decision could prove fatal, had he not been
trained by MI6 (British Secret Service) to react quickly and decisively in life threatening situations. Any Bond/Bourne fan can recall countless times where a jump from a window, dive into/onto a moving vehicle, etc., was made only a spilt second after the protagonist saw his opportunity. Keep in mind, it's part training, part instinct (Not everyone can be trained to be an effective assassin).

There is a direct correlation to trading stocks. In the heat of the moment, it's all too easy to jump on board a skyrocketing ticker or hit the buy button in order to catch a falling knife without really knowing what you're getting yourself/money into. This is happening all too often, now that some trading platforms allow traders to (almost blindly) follow the trades of others. There are known traders such as Timothy Sykes, Investors Underground, and now Reaper, who have many followers/leapers/minions doing just that- following their trades without looking. While they may be lucky enough to begin that bonehead practice with some gains, it just doesn't work long term. They must know what they're looking at/for in order for their leaps not to completely ruin them.

Take Calculated Risks

Bond learned a hard lesson in Casino Royale when he was wiped out during a game of Texas Hold 'Em-style poker. LeChefre, the film's main antagonist, had fooled 007 by faking a tell (Manuerism that let's your opponent know whether or not your bluffing). Bond in turn goes all in, and subsequently loses his entire bankroll (To be accurate- the UK's bankroll).

Being able to properly manage your trading account's risk, or % of your total assets you trade with in a given order, is a make-or-break ability- which can and most certainly should be learned. I can't tell you how many times I've heard (and let's be honest, I'm guilty of this myself) someone say this type of sentence, "That one trade wiped out my entire week's/month's gains". Knowing how much you're willing to lose before ever leaping into a trade is a calculation every trader must know for himself/herself. Furthermore, one must be willing and able to execute an exit order if that threshold/risk level is reached.

Protect Your Assets

No matter what situation Bond finds himself in, he always manages to protect his most sacred assets: loyalty to her majesty, and himself. At times, he's forced to leave women, friends, Astin Martins, etc. behind so he can live to fight another day. Also, he seldom allows
himself to lose sight of his exit strategy simply because he's in the heat of battle.

With stocks, it's important to stick to your trading plan unless outside forces put your assets at risk. As you've probably noticed by now, the 3 qualities of a good secret agent and stock trader are virtually interchangeable. By looking before you leap, you're calculating your risk and protecting your assets. By protecting your assets, you are assuring your ability to take the next leap, and so on and so forth. Learn from the qualities that have kept James Bond from succumbing to the 90% mortality rate of other 00's.

Never wanting to be among the 90% of traders that lose money,

Evan (aka Island Minister)