Author Topic: Just like 2008....  (Read 21612 times)

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Just like 2008....
« on: June 26, 2018, 04:32:58 pm »
I remember being pitched to at my trading desk in London in early 2007 by a young, freshly-minted MBA. I was heading up commodities but had drawn the short straw and had to look after the grad interns. He was adamant the bank should be selling Credit Default Swaps (CDS) against these triple-AAA rated mortgage packages. Easy passive income, no risk... I wasn't so sure but knew I was getting older. I was only 34 but he was 20-something and he had the buzzwords. I knew that selling derivatives into a low volatility market was asking for trouble. We didn't do it and several months later those who did were staring at huge losses as the credit crunch swallowed them whole.

Since then I've managed to slow down and enjoy life in Hogsback, living according to Aristotle's mantra that "Happiness belongs to the self-sufficient". Of course I trade every now and again and the below chart should scare the pants off anyone.... It was inevitable that we would get here of course, such is the nature of momentum. And it may not even be that bad, but it sure is not going to be a rosy 2018 for equities. The vol we're seeing now is just the start of it. Basically, a monthly chart on the Dow is showing short-term momentum having broken below medium term momentum. This is like the wind blowing against the current, causing choppy sideways conditions. Of course this has happened before, in July 2011 and Feb 2015, but those occasions weren't too bad.

Something inside feels different this time. Never before in the course of human history has so much passive money been thrown blindly into the market, expecting outsized returns. In 2011 and 2015 the Fed was in the throes of QE, now it is easing, and rates are starting to shoot up. The trusty 2-10 year US Treasury spread is almost negative again, a sure sign of recession to come. The US is firing on full employment but no-one is any richer, and US citizens are about to start feeling a lot poorer, as the dopamine effects of zero interest wear off.

I'm not predicting a crash, just a lot of sideways bouncing around for now. The crash will come when the US can't refinance its $21-trn debt, even at 5% interest. And at 5% guaranteed interest, what investor is going to want to be in uncertain equity markets moving sideways? The markets sense this already, and are jumpy. Because when the short, medium and long term money all start pulling out the market together, it will be mayhem.

« Last Edit: June 26, 2018, 04:34:30 pm by Bevan »
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

Moneypenny

  • Global Moderator
  • Hero Member
  • *****
  • Posts: 1891
  • Karma: +37/-0
    • View Profile
    • Bu Valiere
Re: Just like 2008....
« Reply #1 on: June 26, 2018, 05:18:36 pm »
I will never forget 2008, was living in Canary Wharf in London and I saw the investment bankers every day walking through those glass revolving doors, black suits with a box full of their personal belongings and the odd plant, tears in their eyes. All started with Royal Bank of Scotland and 45% drop in one day - ancient company wiped  ??? Hectic.

gcr

  • Hero Member
  • *****
  • Posts: 1008
  • Karma: +28/-1
    • View Profile
Re: Just like 2008....
« Reply #2 on: June 27, 2018, 12:23:52 am »
There will always be market corrections economies are cyclic it just depends whether there is a significant event whilst the economies are going through bull territories. I was in banking in 1969 when there was a major correction and have been through all highs and lows since then. In 2007/8 the fall in the markets was substantial some bourses showed drops of 30% in a day but by 2009 most of the markets had recovered whilst others were in recovery. By 2010 my share value was back to what it was prior to the collapse and my portfolio dropped R .5 million over 4 weeks. To my mind our market has already suffered a partial correction - the ALSI has dropped from a high of 61684 on 23/1/2018 to its current level of 55254.67. Markets are to say the least skittish but we would need a major event to get back to a 2007/8 type market crash. There was a graph which released about 18 months after the 2007/8 crash and it showed how quickly the markets recovered after the event. It also illustrated that since about 1903 after each major correction markets tended to achieve higher highs but didn't ever achieve lower lows. Also if I recall correctly if you took the worst crashes versus the peaks still over the period back to 1903 the market improved by 18% over the period in real terms
So the market is a bit scary at the moment and I do believe we will have further short term corrections, should one sell one shares and exit the market - I don't think that's wise. One way of hedging your bets is to sell portions of your holdings and then consider buying back when the prices have dropped to a level you are comfortable to enter the market again
   
Not everything that counts, can be counted, and, not everything that can be counted counts - Albert Einstein

hermit

  • I've just arrived
  • *
  • Posts: 1
  • Karma: +0/-0
    • View Profile
Re: Just like 2008....
« Reply #3 on: June 27, 2018, 01:17:40 pm »
Hi all , been a lurker for awhile

your comments have been very interesting and hit home as i contemplate the future

what would a defensive strategy be in the markets conditions you are referring to ?
« Last Edit: June 27, 2018, 01:19:27 pm by hermit »

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Just like 2008....
« Reply #4 on: June 28, 2018, 12:28:54 am »
Look, I'm completely biased as I'm living the good life, off-grid in Hogsback. I love getting back to nature and have satisfied my travel bug long ago. I tend to agree with Simon Black of Sovereign Man that we all need a Plan B. The financial system is creaking, too many chiefs and too little Indians earning too little. There will be unrest, US debt defaults, bank failures etc. All the easy money has flowed into assets that can revalue to nothing in days. Humanity has created a global system that needs growth at all costs every year. Extrapolate that forward and you reach a breaking point where the man in the street can no longer afford bread. And we can't make it ourselves because we've forgotten how in the quest for economies of scale with super farms, long logistics chains, massive warehouses and giant stores. It's goddamn awful. I don't know when the system will break, but I think it will happen in my lifetime still. It will make the 1930's depression like a walk in the park. Meanwhile I will trade and invest alongside everyone else. This volatility is awesome. I buy deep out the money straddles and sit long gamma, allowing me to easily sell at or near the peaks, and buy the troughs. It's like taking candy from a baby. One last thing, it's amazing how much more successful one is at trading when you're cutting down a tree, cobbing a wall or milking our cow. It's like the universe rewards those who believe and then just let go... Stress creates losses. Don't understand it, but I can easily recommend the Good Life to anyone.
« Last Edit: June 28, 2018, 12:31:56 am by Bevan »
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Just like 2008....
« Reply #5 on: June 28, 2018, 12:47:09 am »
....

what would a defensive strategy be in the markets conditions you are referring to ?

Please notr this should not be considered financial advice. The Rand will likely blow out to around 16 to USD over next year or two. So look at an ETF there. But once we settle down after elections and Trump is impeached and/or the US defaults, I expect SA to perform really well. We are approaching our golden age of max potential youth, assuming we can find them jobs. Only touch gold if you're sure the SH1t is hitting the fan. Avoid crypto until the killer app materialises. Hint... It won't be BTC. Our greatest resource is our people, our wildlife and our natural places. Invest in any business in those areas. The world wants what we have. Also invest in anything to do with looking after poor old people. There are going to be a hell of a lot of them around, especially in the "developed world". I have a sneaky suspicion that US pensions and social security will default on then en-masse, and then issue everyone with a dollar based govt. crypto  currency, much like they took away gold and then devalued it before giving it back in the 30's.

Also, I don't believe you can go wrong by buying a piece of land with good water and soil potential, and becoming self sustainable. Then you are immune to what happens, especially if surrounded by s defensive and like minded community. We got 10 acres in Hogsback for 900k, with house, cottage, natural spring and 100,000 litres of water storage. Plus a forest of oaks, chestnut, cedar, yellow wood and porcini mushrooms. For fun I wanted to know what the bank's would offer as a mortgage? Can you believe only 50% whilst they will 90% bond a tiny box house in JHB for more than that. The system is insane, read Sapiens by Harari. Explains our collective madness very well.

The safest money right now is what Buffett is doing, take s guaranteed 2% interest in 20 day US treasuries and keep rolling. You don't want to be locked in for longer than that every time. I would also avoid the higher yielding SA govis as there is major concern right now around Eskom. If it fails all that debt goes onto the government balance sheet and we go straight to junk status. The bank's and foreigners will be first in line to take their cash out and poor old SA public will get defaulted on. Government bonds come with a risk rating for a reason.
« Last Edit: June 28, 2018, 01:07:56 am by Bevan »
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za

DontPanic

  • I've just arrived
  • *
  • Posts: 24
  • Karma: +1/-0
    • View Profile
Re: Just like 2008....
« Reply #6 on: July 31, 2018, 08:12:40 pm »
Thanks for sharing some very wise words Bevan. Would love to one day do what you have done, stepping off the rat race.

Reminds me of something I read recently.
Einstein's definition of happiness...

"A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness.“

Bevan

  • Full Member
  • ***
  • Posts: 216
  • Karma: +19/-0
    • View Profile
Re: Just like 2008....
« Reply #7 on: August 02, 2018, 09:39:50 am »
...Einstein's definition of happiness...
"A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness.“

Indeed. And as Aristotle said, "Happiness belongs to the self-sufficient". There is no better feeling than you freedom you get from being the master of your own destiny and not having to be dependent on, or pay others for, anything.
Audi, vide, tace, si vis vivere in pace. Pax vobiscum.
Happiness belongs to the self-sufficient - https://www.thrivecentre.co.za