[The Beast1]

I have some money invested right now. I'm young so i'm willing to take some gambles with it.

With that said, lets say that tomorrow there is a Lehman style event. What options do I have to make some money while stocks are tumbling?

Inverse etfs, shorting, puts, ?

[Simeon_Strangelight]

Trading is art and science mixed with mental abilities. It has to be done professionally or not at all.

You may ask a pro trader for some hail-mary trades, but you would likely lose it all or even in case of win lose it probably later as you try to repeat it.

Trading is like Poker or professional sports betting a job. You can do it for fun, but that way you will lose sooner or later.

Rather hold the cash and invest it one day when you see a good opportunity in life. This chance will come and you will be happy for having the money to do it.

[Saweeep]

I think a black swan event by definition is pretty much unpredictable.

[TheFinalEpic]

Be an investor, not a trader.

[robreke]

(07-06-2015 02:38 PM)The Beast1 Wrote:  

I have some money invested right now. I'm young so i'm willing to take some gambles with it.

With that said, lets say that tomorrow there is a Lehman style event. What options do I have to make some money while stocks are tumbling?

Inverse etfs, shorting, puts, ?

It's easier and safer to make money in bull markets for the most part than black swan events, which I translate as a market crash/ bear market.

There's not just going to be some "lehman style event" announcement and then stocks start to decline right on cue. Won't happen that way. Often the market starts to fracture and come apart long before the general public knows why. Everything may be looking great, and probably will be , once the near bear market starts. There are trends that have to be observed over a few weeks or month or longer before a trigger can be pulled.

There are a few ways , however , that one can detect a bear market is on the horizon and make money. Market crashes can be good for quick money over a 2 - 5 month period. The last black swan was the crash of 2007 - 2008 in the stock market. The following phenomenon were present then and are present in most market crashes ( same in 2007 as the 1929 crash as human nature never changes and the stock market is, of course, a gauge of human investing behavior - fear and greed) :

1. The market will have been going up for some time. Years and years ( as it has been now since 2009)

2. Often , the market will make an extreme run up in the period of a month or two ( this didn't occur in 2007 as it was making steady non-parabolic gains, however in 1999- March 2000 ( dot com boom) stocks , most notably the Nasdaq, went parabolic. Stocks also went parabolic before the 1929 crash.

3. After this run up period, the market will start to become extremely volatile. There will be big decline days or weeks followed by big up days/weeks. In 2007 I remember there being days where the market would be in a 600 point range on the DJIA.

I remember one time, the market was jumping all over the place in the morning - up 100 points, 20 minutes later it was down 100 points, then suddenly it dropped to like down 220 points. I knew the trend was set for the day and a fracture was about to happen. I shorted the S&P 500. Market ended down over 550 points by close. I closed out the trade for a quick profit.

When this behavior occurs in the market, it is signs that the multi-year bull market is fracturing. Falling apart if you will. It's a volatile whipsaw process. This type of volatility can't be gradual throughout the day. It has to be very fast and violent; the market moving up a lot and down a lot often within 30 minutes to an hour. I'm talking crazy ranges in a day. Like up 200 down 200. Maybe a few days later....up 100 in the morning then down 400 or more by the close. With today's averages higher than ever, the ranges would probably be even higher. I'm just going off what I remember the ranges being in 2007 before the '08 crash with the market, obviously being at 2007 levels then.

During this time, I put a good number of clients in some 'bear funds' Many doubled their money in less than a year.

If these conditions have been met and you are getting that crazy volatility after years of a run up, you can probably short the market over the next 3-6 months or more and make money. Possibly quick money.

I recommend reading William O'Neill's "how to make money in stocks" and specifically the sections about how to spot market tops.

As with any trade. I recommend stop losses so you don't get wiped out if for some improbable reason, the market recovers and resumes its uptrend.

We have been in a bull market for over 6 years and we are due for a bear market. The market is currently showing signs of slowing down and topping. We're going to have another bear market, maybe this year, maybe next. No one knows for sure but it will happen.

A safer way , is to wait for the next bear market to run its course, then once the market troughs out, and breaks out its 'base' on heavy volume, start to go long. Look at charts of the DJIA and S&P in March and April of 2009 for examples of this bullish behavior. If you can get in after a market wipe out, a la 2007 , at or near the beginning of a new bull, you're probably looking at years , at least 4 or more, of growth.

Timing the markets as I've described requires incredible shrewdness and keeping your emotions at bay. Most everyone who tries timing at first loses money and becomes the market's bitch. As with anything, becoming a successful trader takes experience and practice as with anything else in life one wants to become good at.

Having said all of that, I recommend you, as a young man do the following to insure you're future financial security.

1. Save at least 10% of what you earn ( through your company retirement plan and /or private IRAs or mutual fund accounts )

2. Invest this 10% or more in growth stock funds.

3. Do this for the next 20plus years or more.

4. Take the extra , speculative funds you have and perhaps gamble with some things as stated above.

5. I would say if you have a substantial chunk now, I wouldn't necessarily invest that all in growth stock funds now as the market is high. Maybe dollar cost average that over a year or two period. But, systematic investing over decades is a proven way to accumulate wealth.

6. Save some money for when good opportunities in other areas come along as Zelcorpion suggested, such as real estate deals, etc.

On the side you can buy individual stocks or try to profit from 'black swan events'

Lastly, read as much as you can about investing and creating wealth. Never stop learning.

[CJ_W]

(07-06-2015 02:38 PM)The Beast1 Wrote:  

I have some money invested right now. I'm young so i'm willing to take some gambles with it.

With that said, lets say that tomorrow there is a Lehman style event. What options do I have to make some money while stocks are tumbling?

Inverse etfs, shorting, puts, ?

Kinda late, you should have been looking at shorting stocks in China, as they are having their Lehman style event right now.. .its just not being reported in the media over the Greece issue.

Like robreke said, you cant really predict this kind of event but you CAN see it, people could have seen this in China as early as 2009 but that was too far away from now to really do much with it as you don't know WHEN the bubble is going to burst.

[Deepdiver]

Speaking of a Black Swan event - this is why I am in cash anticipating a crash:

http://www.europac.com/commentaries/big_picture

Peter Schiff's July 7, 2015 Big Picture report.

If a dramatic shock occurs as it did in 2000, will investors again turn away from high leverage and high valuations to seek more modestly valued investments? Then, as now, we believe those types of assets can more readily be found in non-dollar markets.

Another similarity between then and now is the propensity to confuse an asset bubble for genuine economic growth. The dotcom craze of the 1990s painted a false picture of prosperity that was doomed to end badly once market forces corrected for the mal-investments. When that did occur, and stock prices fell sharply, the Fed responded by blowing up an even bigger bubble in real estate. When that larger bubble burst in 2008, the result was not just recession, but the largest financial crisis since the Great Depression.

But once again investors have mistaken a bubble for a recovery, only this time the bubble is much larger and the "recovery" much smaller. The middling 2% GDP growth we are currently experiencing is approximately half of what we saw in the late 1990s. In reality, the Fed has prevented market forces from solving acute structural problems while producing the mother of all bubbles in stocks, bonds, and real estate. A return to monetary normalcy is impossible without pricking those bubbles. Soon the markets will be faced with the unpleasant reality that the U.S. economy may now be so addicted to monetary heroine that another round of quantitative easing will be necessary to keep the bubble from deflating.

The current rally in U.S. stocks has gone on for nearly four full years without a 10% correction. Given that high asset prices are one of the pillars that support this weak economy, it is likely that the Fed will unleash another round of QE as soon as the market starts to fall in earnest. The realization that the markets are dependent on Fed life support should seal the dollar's fate. Once the dollar turns, a process that in my opinion began in April of this year, so too should the fortunes of U.S. markets relative to foreign markets. If I am right, we may be about to embark on what could become the single most substantial period of out-performance of foreign verses domestic markets.

While the party in the 1990s ended badly, the festivities currently underway may end in outright disaster. The party-goers may not just awaken with hangovers, but with missing teeth, no memories, and Mike Tyson's tiger in their hotel room.

[Saweeep]

that old saying:

"the market can stay irrational longer than you can stay solvent"

[Deepdiver]

Holy Crapoly:

http://finance.yahoo.com/news/chinese-st...32650.html

Stocks in China are in free fall.
Markets across Asia followed China's key share indexes into the red Tuesday despite further efforts from Beijing to stave off the relentless fall in Chinese share prices.

A short time ago the benchmark Shanghai Composite was down by more than 5% for the day, having fallen as much as 7%, while the SSE 50 index of the top 50 stocks on the bourse was down more than 7%. The CSI 300 of the largest listed firms on the Shanghai and Shenzhen exchanges was down 7%.

Authorities admitted panic selling had taken hold among Chinese investors.

A China Securities Regulatory Commission spokesman said markets were “full of panic emotion and the number of irrational selling has been increasing”, according to a report in the South China Morning Post.

One-third of the value of Chinese stocks has now been wiped off in three weeks.

Might be a good buy in bottom once this Chinese markets crash freefall finishes... right now at 33% wiped out will it be 50%, 75% or 90% is the question?

[Simeon_Strangelight]

(07-08-2015 12:21 PM)Deepdiver Wrote:  

..
Might be a good buy in bottom once this Chinese markets crash freefall finishes... right now at 33% wiped out will it be 50%, 75% or 90% is the question?

China is a particularly volatile market with sharp spikes both in uptake, but also in down-times.

Just look at their charts from the Lehman crisis. It fell tremendously - doing it very fast.

The Chinese are using the market as a gambling casino, since gambling is forbidden otherwise. Even very rich people are doing the same. So I would not overstress the importance of it.

Still - it is one of those sharp moves that OP is talking about. You can go short now, but missing the bottom can break you. Plus even in such down-times you have tremendous swings up as well. It can all wipe out your capital before another steep fall.

[CJ_W]

(07-08-2015 01:18 PM)Zelcorpion Wrote:  

(07-08-2015 12:21 PM)Deepdiver Wrote:  

..
Might be a good buy in bottom once this Chinese markets crash freefall finishes... right now at 33% wiped out will it be 50%, 75% or 90% is the question?

China is a particularly volatile market with sharp spikes both in uptake, but also in down-times.

Just look at their charts from the Lehman crisis. It fell tremendously - doing it very fast.

The Chinese are using the market as a gambling casino, since gambling is forbidden otherwise. Even very rich people are doing the same. So I would not overstress the importance of it.

Still - it is one of those sharp moves that OP is talking about. You can go short now, but missing the bottom can break you. Plus even in such down-times you have tremendous swings up as well. It can all wipe out your capital before another steep fall.

From an online article:
-----------------------------------------------------------------------------
BEFORE it met a violent end last month, China’s stockmarket rally was more than just your run-of-the-mill mania. It was political. Many investors called it a “state bull market”, believing the government was firmly in control, guaranteeing that shares would only go up. Others said it was an “Uncle Xi bull market”, as if it were a gift from China’s top leader, Xi Jinping. [i]State media lent their official imprimatur to the frenzy: a People’s Daily editorial in May, shortly before the bubble popped, predicted the good times were just beginning. Buying stocks “is buying the Chinese dream”, proclaimed a top brokerage.

The plunge of nearly a third over the past four weeks has left the dream in tatters. Although the market is still up by 75% over the past year, many mom-and-pop investors were late to the party. Less than a fifth of respondents to a large online survey by Sina, a web portal, reported making any money from stocks this year. In this section

For the government, the fall is damaging. Officials are seen to have promised the population a bull market, only to lure them into a bear trap. A flourishing of gallows humour in mobile-phone chat groups captures the sentiment. “Friends, don’t run, we’re here to save you,” cry the valiant soldiers in one joke, representing the state coming to the aid of the beleaguered market. Their refrain soon turns to, “Friends, don’t run, or we’ll shoot you.”

The warning signs had been flashing for some time. ChiNext, a venue for high-growth companies, reached a price-to-earnings multiple of 147 at its height in early June, in the same region as American tech stocks during the dotcom bubble of the late 1990s. When share prices started falling, many assumed that regulators would stay on the sidelines and let the correction unfold. But policymakers lost their nerve after the market fell by nearly 20% and negative headlines started to pile up, even in the domestic press.

Attempts to steady the market have been frantic and largely futile. Interest rates have been cut; short-selling capped; IPOs halted; share-buying schemes, backed by central-bank cash, hatched. “We have the conditions, the ability and the confidence to preserve stockmarket stability,” blared the People’s Daily, as the rout continued.

The CSI 300, an index of China’s biggest listed companies, fell by 16% in the eight trading days after the rate cut. Some $3.5 trillion was erased from China’s stockmarkets, more than the entire value of all listed firms in India. By the end of July 7th trading in over 90% of Chinese stocks had been suspended, either at the request of the firms concerned or because they had tumbled by the daily limit of 10%. “The government won’t let us take our money out of the market, and we don’t have the confidence to put any more into it,” says Wei Xinguo, a chef at a noodle restaurant in Shanghai and one of the country’s 90m stockmarket investors.

The preponderance of punters like Mr Wei makes Chinese stockmarkets volatile. Retail investors account for as much as 90% of daily turnover—the inverse of developed markets, where institutions dominate. But the government’s inability to calm things down despite such heavy-handed intervention is unprecedented. It stems from the degree to which the rally was predicated on debt (see chart).

At its peak, margin financing reached 2.2 trillion yuan ($355 billion), or about 12% of the value of all freely traded shares on the market and 3.5% of China’s GDP. Both proportions are “easily the highest in the history of global equity markets”, according to Goldman Sachs. With Chinese shadow banks and peer-to-peer lenders also offering cash to investors, the actual amount of leverage in the market is likely to have been even higher. That helped propel the original rally. It is now compounding the downturn as investors scramble to sell their holdings to cover their debts.

The sharpness of the slide has raised worries that Chinese growth itself is about to fall off a cliff. Mercifully, the stockmarket appears to be as disconnected from economic fundamentals on the way down as it was on the way up. At the same time as shares nearly tripled from the middle of 2014 until early June, China slouched to its slowest year of growth in more than two decades. In the past couple of months the economy has actually started to improve. A burst of government spending on infrastructure looks to have stabilised the industrial sector; property prices, long in the doldrums, have started to tick up again.

The stockmarket is still just a small part of the Chinese economy. The value of freely floating shares is about a third of GDP, compared with more than 100% in most rich countries. Stocks account for just 15% of household assets, so their slump should have limited impact on consumption. The systemic consequences of the margin debt are also limited. The funding has come from brokers, not banks, and equates to less than 1.5% of total bank assets.

There will undoubtedly be some spillover from the panic. Futures contracts for raw materials from lead to eggs fell by their daily limit on July 8th as investors sold to realise some cash. On international markets, the price of iron ore, which China consumes the bulk of, slid. Yet risks of a systemic nature remain remote.

The long-term consequences could be severe, however. Like any big, sophisticated economy, China needs a healthy equity market. For investors from households to pension funds, stocks should, in theory, provide a better return over time than low-yielding bank deposits[(personal comment)Of course, not if the banks are constantly lending money like they have been for the past 6 years]. For companies, equity financing is an important alternative to bank loans, helping to reduce their reliance on debt. The scrutiny and rules that come with a share listing should also help improve corporate governance.

Before the crash, China was inching towards reforms that would fix some of the distortions in its market. A programme launched last year connected markets in Hong Kong and the mainland markets. Though subject to strict quotas, it promised to introduce more of an institutional presence on China’s exchanges. Regulators had stepped up supervision of insider trading and had also planned to change the way initial public offerings work, giving firms more control over the timing and size of their listings. But as the government’s all-out, if inept, response to the crash shows, it is reluctant to cede control.

Meanwhile, the crash has scarred a generation of investors. Xu Pengfei, a 25-year-old fitness coach, put 100,000 yuan in the market in April, two months before the crash. He managed to get out before losing any money but has no plans to reinvest. “I don’t have much faith now.”[/i]

-----------------------------------------------------------------------------
The bolded parts are a few signs of a "black swan event"

especially when the establishment (The media in the case of the U.S./U.K telling people to buy houses, and the government and government controlled media in China telling people to buy stocks.) Is shouting "buy buy buy."

Warren Buffet mentioned this a few years ago, he said something to the effect of "When the crowd is rushing towards something, it's better to turn the other way.

If you think about it, it makes more sense. Crowds rushing to buy stocks = prices being inflated (supply/demand) = a very soon eventuality in which the prices will be too high to sustain as the prices will be too expensive for anyone else to buy into (like a *cough*mlmtypeponzischeme*cough*) which will result in prices crashing eventually. Thing is it takes a lot of knowledge, knowhow and TIME to be able to really dig through all the information and realize that a crash is imminent.

Combine the stock market issue with the fact that the state run banks have been running rampant for some time, I'd say China is in some trouble.

[robreke]

(07-09-2015 08:06 PM)CJ_W Wrote:  

(07-08-2015 01:18 PM)Zelcorpion Wrote:  

(07-08-2015 12:21 PM)Deepdiver Wrote:  

..
Might be a good buy in bottom once this Chinese markets crash freefall finishes... right now at 33% wiped out will it be 50%, 75% or 90% is the question?

China is a particularly volatile market with sharp spikes both in uptake, but also in down-times.

Just look at their charts from the Lehman crisis. It fell tremendously - doing it very fast.

The Chinese are using the market as a gambling casino, since gambling is forbidden otherwise. Even very rich people are doing the same. So I would not overstress the importance of it.

Still - it is one of those sharp moves that OP is talking about. You can go short now, but missing the bottom can break you. Plus even in such down-times you have tremendous swings up as well. It can all wipe out your capital before another steep fall.

From an online article:
-----------------------------------------------------------------------------
BEFORE it met a violent end last month, China’s stockmarket rally was more than just your run-of-the-mill mania. It was political. Many investors called it a “state bull market”, believing the government was firmly in control, guaranteeing that shares would only go up. Others said it was an “Uncle Xi bull market”, as if it were a gift from China’s top leader, Xi Jinping. [i]State media lent their official imprimatur to the frenzy: a People’s Daily editorial in May, shortly before the bubble popped, predicted the good times were just beginning. Buying stocks “is buying the Chinese dream”, proclaimed a top brokerage.

The plunge of nearly a third over the past four weeks has left the dream in tatters. Although the market is still up by 75% over the past year, many mom-and-pop investors were late to the party. Less than a fifth of respondents to a large online survey by Sina, a web portal, reported making any money from stocks this year. In this section

For the government, the fall is damaging. Officials are seen to have promised the population a bull market, only to lure them into a bear trap. A flourishing of gallows humour in mobile-phone chat groups captures the sentiment. “Friends, don’t run, we’re here to save you,” cry the valiant soldiers in one joke, representing the state coming to the aid of the beleaguered market. Their refrain soon turns to, “Friends, don’t run, or we’ll shoot you.”

The warning signs had been flashing for some time. ChiNext, a venue for high-growth companies, reached a price-to-earnings multiple of 147 at its height in early June, in the same region as American tech stocks during the dotcom bubble of the late 1990s. When share prices started falling, many assumed that regulators would stay on the sidelines and let the correction unfold. But policymakers lost their nerve after the market fell by nearly 20% and negative headlines started to pile up, even in the domestic press.

Attempts to steady the market have been frantic and largely futile. Interest rates have been cut; short-selling capped; IPOs halted; share-buying schemes, backed by central-bank cash, hatched. “We have the conditions, the ability and the confidence to preserve stockmarket stability,” blared the People’s Daily, as the rout continued.

The CSI 300, an index of China’s biggest listed companies, fell by 16% in the eight trading days after the rate cut. Some $3.5 trillion was erased from China’s stockmarkets, more than the entire value of all listed firms in India. By the end of July 7th trading in over 90% of Chinese stocks had been suspended, either at the request of the firms concerned or because they had tumbled by the daily limit of 10%. “The government won’t let us take our money out of the market, and we don’t have the confidence to put any more into it,” says Wei Xinguo, a chef at a noodle restaurant in Shanghai and one of the country’s 90m stockmarket investors.

The preponderance of punters like Mr Wei makes Chinese stockmarkets volatile. Retail investors account for as much as 90% of daily turnover—the inverse of developed markets, where institutions dominate. But the government’s inability to calm things down despite such heavy-handed intervention is unprecedented. It stems from the degree to which the rally was predicated on debt (see chart).

At its peak, margin financing reached 2.2 trillion yuan ($355 billion), or about 12% of the value of all freely traded shares on the market and 3.5% of China’s GDP. Both proportions are “easily the highest in the history of global equity markets”, according to Goldman Sachs. With Chinese shadow banks and peer-to-peer lenders also offering cash to investors, the actual amount of leverage in the market is likely to have been even higher. That helped propel the original rally. It is now compounding the downturn as investors scramble to sell their holdings to cover their debts.

The sharpness of the slide has raised worries that Chinese growth itself is about to fall off a cliff. Mercifully, the stockmarket appears to be as disconnected from economic fundamentals on the way down as it was on the way up. At the same time as shares nearly tripled from the middle of 2014 until early June, China slouched to its slowest year of growth in more than two decades. In the past couple of months the economy has actually started to improve. A burst of government spending on infrastructure looks to have stabilised the industrial sector; property prices, long in the doldrums, have started to tick up again.

The stockmarket is still just a small part of the Chinese economy. The value of freely floating shares is about a third of GDP, compared with more than 100% in most rich countries. Stocks account for just 15% of household assets, so their slump should have limited impact on consumption. The systemic consequences of the margin debt are also limited. The funding has come from brokers, not banks, and equates to less than 1.5% of total bank assets.

There will undoubtedly be some spillover from the panic. Futures contracts for raw materials from lead to eggs fell by their daily limit on July 8th as investors sold to realise some cash. On international markets, the price of iron ore, which China consumes the bulk of, slid. Yet risks of a systemic nature remain remote.

The long-term consequences could be severe, however. Like any big, sophisticated economy, China needs a healthy equity market. For investors from households to pension funds, stocks should, in theory, provide a better return over time than low-yielding bank deposits[(personal comment)Of course, not if the banks are constantly lending money like they have been for the past 6 years]. For companies, equity financing is an important alternative to bank loans, helping to reduce their reliance on debt. The scrutiny and rules that come with a share listing should also help improve corporate governance.

Before the crash, China was inching towards reforms that would fix some of the distortions in its market. A programme launched last year connected markets in Hong Kong and the mainland markets. Though subject to strict quotas, it promised to introduce more of an institutional presence on China’s exchanges. Regulators had stepped up supervision of insider trading and had also planned to change the way initial public offerings work, giving firms more control over the timing and size of their listings. But as the government’s all-out, if inept, response to the crash shows, it is reluctant to cede control.

Meanwhile, the crash has scarred a generation of investors. Xu Pengfei, a 25-year-old fitness coach, put 100,000 yuan in the market in April, two months before the crash. He managed to get out before losing any money but has no plans to reinvest. “I don’t have much faith now.”[/i]

-----------------------------------------------------------------------------
The bolded parts are a few signs of a "black swan event"

especially when the establishment (The media in the case of the U.S./U.K telling people to buy houses, and the government and government controlled media in China telling people to buy stocks.) Is shouting "buy buy buy."

Warren Buffet mentioned this a few years ago, he said something to the effect of "When the crowd is rushing towards something, it's better to turn the other way.

If you think about it, it makes more sense. Crowds rushing to buy stocks = prices being inflated (supply/demand) = a very soon eventuality in which the prices will be too high to sustain as the prices will be too expensive for anyone else to buy into (like a *cough*mlmtypeponzischeme*cough*) which will result in prices crashing eventually. Thing is it takes a lot of knowledge, knowhow and TIME to be able to really dig through all the information and realize that a crash is imminent.

Combine the stock market issue with the fact that the state run banks have been running rampant for some time, I'd say China is in some trouble.

^ The above article describes the classic way in which many a bull market has died in the past. It's the euphoria stage. The "nothing can go wrong, everything is different now" phase. The "New paradigm" stage as the attached chart shows.



Similar to the tulip bubble mania in Europe centuries ago or the dot com boom that happened in the late 90s. Usually the majority of the public gets in on these bull markets toward the tail end. I'd say the majority jump in around the 'media recognition phase' Human nature never changes and it applied to all the Chinese proclaiming all of these euphoric 'nothing can go wrong' observations. When you hear people/investors/financial commentators and the media talking this way, a good bet is to usually go to cash.

On the other side of the coin from the general public, we have the "smart money" , i.e., wealthy individuals, big institutions, and world players who have been accumulating shares for years starting at bargain prices. This would be represented by the "stealth phase" on the above chart.

These smart players sell into strength, perhaps many years down the line as the bull market is reaching its maturation. They sell into strength just as the public is buying into strength. Sure, a lot of the public gets in early enough to make a profit before the bubble bursts. But how many of them are caught flat footed when the bubble pops? A lot.

I had clients calling me in the late 90s ( 98 and 99 ) who were just hungry and desperate for the next dot com company that was launching out of someone's garage in silicon valley. It was greed at work as they were afraid they were missing the train and saw other investors making money hand over fist. I was doing quick trades at the time, taking quick profits. Many clients of mine didn't like this as shares often went higher. However, none who followed my advice on a quick trade ( a few days to a few weeks holding period ) got blown up when the implosion came.

So where are we in this bull market? No one knows for sure. From a purely technical standpoint, that is looking at the charts of the major indices, one would approximate the media attention / enthusiasm stage. It doesn't quite look like a bubble yet. The market's ascent isn't exactly parabolic. However, all bull markets don't really have to go parabolic before a collapse. Case in point; 2008 before the stock market started to crash, stocks had been rising in an orderly fashion in a nice general uptrend since early 2000s. No parabola there. As most of us can remember, the market imploded and stocks crashed in spectacular fashion, the likes of which hadn't been seen since the late 20s.

To see a parabolic rise (true bubble) observe charts of the nasdaq in the late 90s or the stock market in the late 20s:

Here's the nasdaq bubble. Notice the insane, almost straight up rise of stocks in the second half of '99 a few months before the crash. That's euphoria. That's the last of the investing public rushing in right at the end because they don't want to miss out anymore. It's just too painful to be left out when everyone else is making money. This is a parabolic rise. It always portends a correction in prices whether it is an entire market, or an individual stock:



The fact that stocks have been sluggish and a bit more to the downside here in 2015 could prove to be a beneficial thing for stocks longer term. By letting off some steam and producing some doubt in the bulls and reducing optimism, the market could be setting itself up for another leg up. Corrections during bull markets are good things for the life of the bull.

There's an indicator professionals use a lot called the Bull/Bear Ratio. It's a contrarian indicator meaning, when there are more bulls than bears, the market is usually getting toppy and more often than not, a correction is imminent. Not a bear market mind you, but just a correction, a pullback, a downward trend in stocks for a few weeks or perhaps months. Likewise, when the Bears are overly optimistic and there are no bulls in sight, a new uptrend is usually in place. This indicator is to be used with others, but the long term history of it has been surprisingly accurate. For some time this year, the bulls have outnumbered the bears by quite a bit. Last time I checked, the ratio of bulls to bears is getting much more even. However, like I said, a really meaningful uptrend often requires more bears than bulls.

At the low in March 2009, The ratio was heavily skewed in favor of the bears as one would expect. When stocks started to violently rebound to the upside, there was still a tremendous amount of doubt. Many people had been nearly wiped out. There was no way there were going to believe this rally was for real. Only, it was for real. And how.

It took some time before the ratio got back to even. By then, stocks had made a substantial increase off the lows. This is an extreme example of course, but it illustrates the doubt many otherwise would be bulls have after they've had their investing asses handed to them on a plate by the market.

China could be a harbinger of things to come for US stocks. Hopefully, the US markets are just catching their breath here and can resume their uptrend soon.

One thing bear markets are good for to be sure; when they're over with, they almost always present the single best opportunity to make a lot of money any investor will have in their life because he's looking at years and years of growth in the stock market. A key, is obviously patience, as bear markets may last years. The '08 crash was so sudden and violent , that it was basically less than a year. There was also the artificial stimulus of QE that helped it recover like a rocket taking off. On the other hand, the bear market of the 70s was particularly brutal as it grinded along for nearly 9 years before the next bull market started in the early 80s.

The key is, of course, knowing when the bear is over, and the new bull is coming out of the gate.

[monster]

(07-06-2015 06:55 PM)CrashBangWallop Wrote:  

I think a black swan event by definition is pretty much unpredictable.

This. To profit from a black swan event you have to predict the black swan.

If the black swan is made public and then you get in the trade that's called event-driven trading, and essentially you would be riding the momentum either up or down.

For example, right now there's Greece...the smart money is already exited but people are still riding the momentum.

[Deepdiver]

Interesting email alert...

WHEN $4 TRILLION GOES TO STOCK MARKET HEAVEN
by Eric Fry

Not to be alarmist, but the wealth destruction taking place in China is truly alarming... and it is probably not a "non-event" for the U.S. financial markets.

The People's Bear Market

During the last 30 days, nearly $4 trillion of Chinese stock market wealth has gone "Poof!" That's a very large number. It is larger, for example, than the market value of every stock in the United Kingdom.

Losing $4 trillion of stock market wealth, therefore, would be like every stock on the London Stock Exchange falling to zero! ... Or it would be like every stock on the French and German stock exchanges falling to zero... Or like every stock that trades in India, Australia and Brazil falling to zero.

China Syndrome

$4 trillion is a big number, folks.

In fact, it is larger than the $3.7 trillion of foreign exchange reserves the Chinese have sweated to accumulate during the last two decades. That kind of money doesn't come easily. But apparently it vanishes quite easily.

Perhaps $4 trillion of Chinese wealth can go to stock market heaven without sending any serious shockwaves throughout the rest of the world's financial markets. After all, this capital was mostly "phantom wealth" anyway. It did not exist before last March, when the Chinese stock markets started to "go parabolic." So maybe the world's financial markets will be able to forge ahead as if this $4 trillion boom and bust never really happened.

But that's not usually what happens in the aftermath of a big financial bust. Usually, knock-on effects pop up in lots of different places... and in lots of different financial markets. And that's because big financial busts usually force leveraged investors to deleverage - i.e., to sell assets.

Deleveraging usually begins with the good old-fashioned "margin call." (This process is already unfolding in China.) Leveraged speculators sell stocks to raise cash to cover their rapidly increasing losses. As the losses grow, the speculators sell other assets in order to raise cash. Those assets could be anything from bonds to gold to, yes, even U.S. stocks.

But these margin calls are merely the beginning of the deleveraging process. After all, China does not possess a monopoly on leveraged speculators. These folks are everywhere... and in every financial market.

So when one big market loses a quick $4 trillion, many of the leveraged speculators operating in other financial markets go into "risk off" mode. They reduce their leveraged bets, wherever those bets may be... including, potentially, leveraged bets on U.S. stocks. And remember, U.S. margin debt sits at an all-time high.

Levered Up!

On top of this traditional leverage sits an even larger pile of leveraged derivative instruments. When you add it all up, there's quite a bit of leverage out there that could be unwound.

So if a few leveraged speculators start taking risk off, stocks might start dropping a little... which could inspire leveraged speculators to take more risk off... which could cause stocks to drop a little more.

Before long, ordinary folks might also head for the exits and, voilà, you'd get a stock market sell-off. Nothing that's automatically catastrophic, mind you, just something that features minus signs instead of plus signs.

A China-induced sell-off in the U.S. stocks is not a certainty, of course. The U.S. stock market may well remain the oasis of calm and continuously rising prices it has been for most of the last six years. But that delightful outcome seems unlikely.

Great big financial market busts do not usually "go gentle into that good night." They usually go wildly into bad days of volatile trading.

Bottom line: There may be no reason to panic... but if you're in a mood to panic, now might be a good time to do it.

Cheers,

Eric Fry

For The Non-Dollar Report

[Bad Hussar]

(07-08-2015 05:14 AM)CrashBangWallop Wrote:  

that old saying:

"the market can stay irrational longer than you can stay solvent"

Love that saying. I think it was one of the Rothschild's. Let's see.... No, according to the interwebs it was Keynes. One of the Rothschild's did come up with "Only buy when there is blood in the streets" though, which I also like.

One trade I'm considering in a couple of months time is to short the Canadian $ against the US$. For a variety of reasons Canada is deep in the doo doo, but does not completely realise it yet. May get a situation late September when the Fed is raising US interest rates and the Bank of Canada is reducing them. Also the Canadian economy is in much worse shape right now than the US. I expect multi decade lows being reached in CAD/USD as a result. About the only thing holding up the Canadian economy right now is residential real estate, which is in the biggest bubble in this asset class that has ever existed in Canadian economic history. And that is not hyperbole.

In a perfect world for Black Swan traders the CAD crashes first, late this year, but housing remains buoyant (in CAD terms) due to "low interest rates". Then early in the new year the other shoe drops (residential real estate bubble pops), presenting two massive swings (and thus potential for big gains).

[WestIndianArchie]

The Black Swan event that Nassem Taleb profited from was betting against all of the 99% of the smart money on wall street.

The mathematical models and the sheer # of phd's, quants, analysts, and researchers said that there was no housing bubble. The market was functioning efficiently. All of these credit swaps, derivatives, and synthetic derivatives made the entire thing safer - so even if there is a problem - your investment is covered.

It's obvious now that there was a huge problem from individuals buying and flipping houses with NINJA loans to guys making a mint bundling loans up and selling them to people who should have known better.

But that's the definition of the black swan event. Every thing failed, Even the fail safes failed.

Same thing with Fukushima. They built a lot of shit all over Japan based on their "worst" case scenario, and that earthquake was even worse than their nightmare.

Back on wall street, A few guys said that the emperor has not clothes and they made a Mt. Everest pile of money. And if you really understood his argument, the entire market was the turkey being fattened. Turkey was living it up, eating every day. But the butcher knows that those days are numbered.

So what's the thing that everybody relies on?
That there's no way that the powers that be are going to let that fail, or bust, et cetera.

That's the black swan.

So if you can buy instruments that take advantage of a Earthquake in NYC, something that's "never" gonna happen, that's "tail event" investing.

With the New Yorker publishing about the overdue major earthquake in the Northwest, that's now on people's horizons.

The other crucial thing to remember is that things like a tech crash, oil crash, natural disaster, invention - gambling on those things has to be cheap. The house has to misprice the odds.

So 2 things have to happen
- you have to pick the right crash
- the lottery tickets have to be for fractions of a penny on the dollar.

His tail event funds had sophisticated mathematics to calculate the odds of the event, as well as what the price should be, and compare that to the price offered. I think the first one he was in failed. i.e. they gambled away MILLIONS OF DOLLARS AND GOT NOTHING. (Gladwell covered it way back when)

The 2nd one allegedly made him a tidy sum.

And he need millions of other people's money in order to make his own.

WIA

[Bad Hussar]

(07-13-2015 08:54 PM)WestIndianArchie Wrote:  

...

The mathematical models and the sheer # of phd's, quants, analysts, and researchers said that there was no housing bubble. The market was functioning efficiently. All of these credit swaps, derivatives, and synthetic derivatives made the entire thing safer - so even if there is a problem - your investment is covered.

It's obvious now that there was a huge problem from individuals buying and flipping houses with NINJA loans to guys making a mint bundling loans up and selling them to people who should have known better.

But that's the definition of the black swan event. Every thing failed, Even the fail safes failed.

...

Great post WIA, but I can't agree with the bolded portion.

I follow the Canadian housing market quite closely since in my opinion it will yield a massive Black Swan event. Good for the tiny number of people who are able to profit, but near unimaginably bad for the general Canadian population. It could well drive more than 10% of households into full bankruptcy. More than 50% into insolvency. The bubble is so obvious you'd have to be certifiable not to recognise it. Housing prices more than DOUBLE any reasonable historic trends.

Anyway, in the US before the 2008 crash I think it wasn't so much that nobody, PHD's or otherwise, thought there could be a housing bubble. Plenty of people noticed the obvious fact that housing was massively overvalued compared to any historical norms. As you mention it is probably that the banks thought they had insulated themselves with all the fancy financial engineering. Why they thought this I can't say, since in any market crash your "counterparties" will go bankrupt (e.g. AIG) and won't be able to pay you. So your hedges are for naught. I guess they were "banking" on the US government making good on bad debts they themselves should have made allowances for in their risk management. I guess this is sort of what happened, which is why there were all the complaints about "privatised profits and socialised losses" at the time.

[samsamsam]

Part of the problem in trying to make a fortune with a black swan event is timing. You may see the writing on the wall but when exactly it happens is hard to predict.

A lot of guys saw the housing bubble happening in the US. But some were yelling about it in 2005 and 2006. I can't imagine they made it to 2008 if they were shorting home builders in 2005 or 2006. I'm pretty sure they had massive losses leading up to 2008 on their short positions.

[Bad Hussar]

(07-14-2015 10:20 AM)samsamsam Wrote:  

Part of the problem in trying to make a fortune with a black swan event is timing. You may see the writing on the wall but when exactly it happens is hard to predict.

A lot of guys saw the housing bubble happening in the US. But some were yelling about it in 2005 and 2006. I can't imagine they made it to 2008 if they were shorting home builders in 2005 or 2006. I'm pretty sure they had massive losses leading up to 2008 on their short positions.

Absolutely. That's why you must accept that you'll have to make many small "bets", and lose a little each time, before any one bet pays off. And, yes, it may not pay off before you have exhausted the funds allocated to that particular trade. But if you are in the market when it pays off, well, it really pays off.

That's why I get excited the longer any market stays "irrational". Because while it can, indeed stay irrational longer than I can stay solvent, the longer it defies good sense the more pressure that builds up. That is really my main reason for recommend shorting Canadian housing. It has been irrational for between 5 and 10 years now. Certainly in big markets like Vancouver and Toronto. The built up pressure is massive. Steam escaping from any tiny opening, but the pressure is still building. When it blows it will be something to behold.

[samsamsam]

^^ Bad Hussar, but when it starts tanking will it be too late to get in? I am not sure how the markets operate in Canada, but from what I understand, in the US, you can only short a stock off an uptick, right?

I imagine everyone will be trying to short and get whatever they can get their hands on.

I guess you would just short the market in general?

I have read there are some ETFs that bet against the market, maybe just buy some of that?

Or as you said, just short and cover until it just dives.

It will be entertaining watching it collapse, but how does one get in and profit from it?

[lavidaloca]

Bad Hussar...Isn't that a pretty risk play considering the Canadian economy / dollar value is substantially impacted by Banks and Oil both of which are way down due to oil valuations.

[WestIndianArchie]

(07-14-2015 10:15 AM)Bad Hussar Wrote:  

(07-13-2015 08:54 PM)WestIndianArchie Wrote:  

...

The mathematical models and the sheer # of phd's, quants, analysts, and researchers said that there was no housing bubble. The market was functioning efficiently. All of these credit swaps, derivatives, and synthetic derivatives made the entire thing safer - so even if there is a problem - your investment is covered.

It's obvious now that there was a huge problem from individuals buying and flipping houses with NINJA loans to guys making a mint bundling loans up and selling them to people who should have known better.

But that's the definition of the black swan event. Every thing failed, Even the fail safes failed.

...

Great post WIA, but I can't agree with the bolded portion.

I follow the Canadian housing market quite closely since in my opinion it will yield a massive Black Swan event. Good for the tiny number of people who are able to profit, but near unimaginably bad for the general Canadian population. It could well drive more than 10% of households into full bankruptcy. More than 50% into insolvency. The bubble is so obvious you'd have to be certifiable not to recognise it. Housing prices more than DOUBLE any reasonable historic trends.

Anyway, in the US before the 2008 crash I think it wasn't so much that nobody, PHD's or otherwise, thought there could be a housing bubble. Plenty of people noticed the obvious fact that housing was massively overvalued compared to any historical norms. As you mention it is probably that the banks thought they had insulated themselves with all the fancy financial engineering. Why they thought this I can't say, since in any market crash your "counterparties" will go bankrupt (e.g. AIG) and won't be able to pay you.

All the accounts suggest that their internal risk departments at a lot of these places rang alarms, but the market was so frothy that people just ignored them.

One of the great stories @ my law school was about a partner at V&E who turned down Enron's offer to pay the firm in stock. The partnership was PISSED. I don't know if they wanted to strip his equity shares from him, but them good ol boys don't fuck around.

But then when the shit hit the fan, the prudent lawyer was looking smug as a mf'er. All the millions that they brought in over fees was real money, not paper stock that would have frittered away in the bank, but more importantly entangled them in the fraud scheme. (oh, you helped prepare these loans, and you were profiting from the increase in stock price...?)

It's rare that people get pats on the back for being cautious and saving money, reducing risk.

IMO, It was also an indictment of Market Portfolio Theory.

Everyone was diversified, so when they had to call in their markers - and sell some "good" stock to pay off debts, suddenly businesses unrelated to the Finance, Insurance, and Real Estate started to take hits.

So even if you're super diversified, everyone else is as well. And the shit hits the fan every 8-10 years, and the same thing happens. This time won't be different if investors do the same thing.

You probably know the Canadian market better than I do.

But that only goes to the second part. Is the price of making your bets outsize to the reward?

If the Canadian market does tank, might it not be a better move to swoop in later when Tim Horton's stock crashes because everyone is selling trying to repay CIBC loans? (I apologize for not knowing more Canadian companies)

Buying when there's blood in the street? (Rothschild)
Buying great companies @ a fair price? (Warren Buffet)

I'll let the resident experts speak on it. I've said my piece on Taleb's basic philosophy.

WIA

[Emancipator]

And the Bank of Canada cut its rate

Toronto and Vancouver property is going to start to heat up even more due to 1) cheap credit 2) cheaper currency, thus making it more attractive for foreigners (not to mention I'm willing to bet with China's volatile stock market, Chinese are going to want to park their money in Toronto and Vancouver property.

[Bad Hussar]

(07-15-2015 10:14 AM)Emancipator Wrote:  

And the Bank of Canada cut its rate

Toronto and Vancouver property is going to start to heat up even more due to 1) cheap credit 2) cheaper currency, thus making it more attractive for foreigners (not to mention I'm willing to bet with China's volatile stock market, Chinese are going to want to park their money in Toronto and Vancouver property.

Yup. And a nice move down in CAD/USD. More to come when the Fed raises interest rates. And a really big move when the realisation that existing asset prices are built on sand.

The government has to delay the housing crash because they are facing an election soon. So I guess they leaned on the BoC. % is a bigger move than I would have thought though.

This is "great" (not for the people) news since it increases the pressure even more, and therefore the explosiveness of the crash.

[Bad Hussar]

(07-14-2015 04:52 PM)lavidaloca Wrote:  

Bad Hussar...Isn't that a pretty risk play considering the Canadian economy / dollar value is substantially impacted by Banks and Oil both of which are way down due to oil valuations.

I would concentrate on shorting the major banks. Their values are holding up pretty well considering the collapse in the oil price, probably because of all the money they are making on mortgages they consider no risk. They consider them no risk since most of their residential mortgages are given to people who need to take out CMHC insurance (less than 20% deposit). The CMHC is a Crown Corporation and technically will make good on any defaulted mortgages. But, to put it bluntly, they do not use proper underwriting techniques, and in the event of a residential property market crash they will simply not have enough money to repay the banks. Whether the Canadian government will/could make up the difference is the Can$500 billion question.

Despite not being a natural supporter I almost hope that the NDP gains power at the next election and simply doesn't give CMHC any money to make up the difference, allowing it to default and leaving the banks with massive unpaid, and unpayable, loans on their books.