"FDR,
Waiting for the "ALL-IN" call.
I sense everyone is sobering up."
Me too, but the obvious straddle still strikes me as a little too easy. Usually that means the market will oscillate for a little while it works off the time value of traders playing it both ways. I am going to see what the next few days brings.
Another reason not to hurry to short stocks is the high potential for silver/gold to keep breaking south. That remains the best trade in my opinion, and it is where I'm concentrating for now.
I am only talking about high risk short term trades here. The long term outlook, with free market capitalism dead and buried, trillions in leveraged losses continuing to eat away bone, and mega deflation ravaging real estate in particular, make a phased dollar cost averaged "sell and hold"approach a no brainer for at least a decade, probably several.
Also, I want to reemphasize the systemic risk present for the next several years to both long and short positions. The smart money remains 100% cash and treasuries (from increased buying power). Remember, to make a trade you must have a better than even chance of beating a 50-100% annual return on cash to justify exposing any capital to risk.
Tuesday, March 24, 2009
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The problem with shorting a commodity is the risk is asymmetrical. Theoretically a commodity can't go to zero but it can go to infinity in terms of dollars. Therefore you are taking unlimited risk for a limited potential gain.
ReplyDeleteThere is always a lot farther to zero than there is to infinity.
ReplyDeleteFDR,
ReplyDeleteAre you backing away from your wave count where we move significantly down at the end of this counter move? You seem less confident in the move.
While FDR is someone I barely "know" from this blog, some of you may find comfort in the fact that the positions from Elliott Wave International (Prechter & Co.) differ from FDR only in some short-term details.
ReplyDeleteIf you want to short this market, take a look at building a position in an ETF like ProShares UltraShort S&P500 or DOW30 where you don't have to get the timing perfect, like OEX or SPX options...
My 2 cents.
"There is always a lot farther to zero than there is to infinity."
ReplyDeleteI am sure that there is profound meaning in this statement, but I may not be smart enough to grasp it without help.
Are you saying that prices will never go to zero, because people are never going to give a commodity like gold away, but that, at some point, due to currency devaluation, people may become unwilling to trade gold for any amount of dollars (and therefore reach infinity)?
If so, I am proud of myself.
You should be proud of yourself.
ReplyDeleteGenerally you have more potential to make money on a short than a long. It is more common to approach $0 than infinity. In terms of percentage gains, both directions are unlimited.
Does it seem it will be nearly impossible to short bank stocks involved in the new Treasury plan?
ReplyDeleteCertainly takes the adage, "privatize the profits, socialize the losses" to a new extreme!
It's easier for a stock to reach $1 than it is to reach $1000.
ReplyDeleteThat doesn't change the fact that you're taking unlimited risk for a limited potential gain.
"It's easier for a stock to reach $1 than it is to reach $1000."
ReplyDeleteAnd from that point, it is easier to reach .10 than 100. And so on. There is a lot more usable percentage gain on the way to 0 than there is to infinitity.
"That doesn't change the fact that you're taking unlimited risk for a limited potential gain."
There are lot of ways to bet that a price goes up with unlimited risk (ref: the so-called "pros" at BSC LEH GS MS CFC NFI and most other financials who ruined their companies because not a single influential person in the comany understood the basics) and there are a lot of ways to bet a price goes down with limited risk.
In fact, I personally think you'd have to be crazy to buy any stock long, ever, when you can short a put at the money with less risk in all situations and higher return in almost any situation.
"(ref: the so-called "pros" at BSC LEH GS MS CFC NFI and most other financials who ruined their companies because not a single influential person in the comany understood the basics)"
ReplyDeleteTheir bets were insured by a bigger sucker, namely AIG counter party risk.
The biggest sucker of it all is American taxpayers, a last resort of insurance. Risk is limited on the up side, quite contrary to your beliefs.
Unfortunately, there is no counter party exposure to insure your shorts.
A key problem is that there are too many counter parties insuring both long and short positions backed by spurious reserves. I'm often better capitalized that my derviatives underwriter.
ReplyDeleteThere are infinite ways to play both sides with limited or limitless risk, so the direction of the bet is meaningless.
I think he's been calling "all-in" short for a long while.
ReplyDelete"I think he's been calling "all-in" short for a long while."
ReplyDeleteSince Dow 14,100 to be exact. But with triumphant gains come opportunities to lever it up or be patient. If you are late to the party, you have to respect the coiled spring at this juncture.
Be smart (100% cash) or be patient, as I've been saying above, there is always an infinite distance to 0. Our corrupt government corporatocary will use all of it.