Terrible Swift Sword ([info]kenshi) wrote,
@ 2008-11-11 11:24:00
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Market Update: November 11, 2008 - Now with Tasty Graphics!
Here's a graphic summary of my current most-probable case on the DJIA.


I'll update this with the next most-probable case as I get it done. Stay tuned.

(9 comments) - (Post a new comment)


[info]wandererrob
2008-11-11 09:45 pm UTC (link)
So, get out of any and all possible debt now and start squirreling away cash and prepare to weather the storm that starts sometime in the next 2 years?

My 401k is going to be dessimated, isnt' it? Good hting I'm not planning to retire for another 35 years.

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[info]kenshi
2008-11-15 12:06 am UTC (link)
If your 401(k) can be moved to cash as we move into an upward price area, you can recover some value and protect yourself from other losses.

If your 401(k) plan allows you to control what you invest in and is open to all sorts of funds, you might take a quick look at RYCWX and RYCVX as a way to trade these market moves.

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[info]xenoweeno
2008-11-12 12:07 am UTC (link)
I'll borrow a scenario I saw in another journal, which you also responded to.

A wealthy benefactor who liked you for your stunning good looks (and, of course, your rapier wit) shuffled off the mortal coil, dropping a half million smackers in your lap in the process.

Do you play the markets with it? If you are too trepidatious to try to make it grow, what do you do to preserve that money's purchasing power during the carnage? What do you do to maintain the stability of your life during the crisis you think is coming?

I'm enjoying reading your evaluations of the stats and the psychology, but I'm also interested in learning about what your concrete actions will be if things proceed the way you think they will. In the interest of full disclosure, I'm picking your brain in order to make a judgment of the extremes of your risk-seeking or risk-averse behavior, and I'm also curious to see if you're making these predictions and actually doing something in anticipation of them.

I choose a half million for this hypothetical over the $10,000 in the other post because a half million is easily enough to get yourself hunkered down in a rural bunker with years of food reserves and ammo, away from the unwashed masses who will be rioting in the cities after the government assistance ends (et cetera, et cetera)--if yer one'a them there survivalist types and you really wanted to do it.

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[info]kenshi
2008-11-15 12:14 am UTC (link)
I'd probably do one of a few things with the money (maybe all of them, since $500,000 can go a long way):

1) Take a significant position in RYCWX as the market trades into a near-term high, then sit on it for awhile (this is my "Sell and Hold" strategy), and/or,

2) Keep cash (actual cash, in a solid, liquid form, not "cash equivalents") while the markets are all deflating and chaos reigns.

2.1) Once the markets are bottoming out at some level, use the cash to:

2.1.A) Buy up a bunch of computer-automated CNC milling machines of various types, plus all the equipment necessary to run them.

2.1.B) Start a REIT and buy real estate on the cheap in key areas with high cap rates.

The next macro phase of our economy, following resolution of this crisis, is going to be manufacturing-driven. That's how the cycles work in this country: Manufacturing -> Marketing -> Finance -> Lather/Rinse/Repeat. Whoever is well-positioned to do design-driven mass-customization manufacturing is going to own the world for at least twenty-five years following the crisis. Making stuff is going to become a major part of the US economy again.

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[info]xenoweeno
2008-11-17 05:54 pm UTC (link)
If you go all in on RYCWX, what will have to happen to spook you and make you withdraw? What will invalidate your predictions? How much response time do you have to have to avoid getting annihilated?

Are you planning on alternating buying and selling RYCWX on the peaks and valleys of that predicted chart?

Are you afraid of a USD bubble?

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[info]kenshi
2008-11-18 09:24 pm UTC (link)
I alternate between three positions to trade the market as it fluctuates downward, changing at each target price range in the projected market path in that chart (if we hit a near-term bottom soon--around 6,500 or so--I will probably go 200% long on confirmation and hold that position for a few months):

1) Short (RYCWX)
2) Neutral (Cash)
3) Long (RYCVX)

These funds can't be traded intra-day. However, unlike other leveraged investments, there is no chance of losing more than your principal on them. That's always the downside of futures.

To get me out of a position, all the market has to do is trade beyond identified price targets or trading ranges associated with various scenarios and their respective probabilities. That's already happened to me a couple of times in the last four weeks, and is why I unwound my big short position (taken back in June) as we went into the sideways correction that started in early October.

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[info]kenshi
2008-11-18 09:34 pm UTC (link)
As far as the dollar goes, here's my outlook:

1) the dollar is deflating right now and is going to deflate a lot more. That's bad news for anyone who has a lot of debt or is dependent on employment for their income, but good news for anyone holding cash. The deflation is a direct result of the credit crunch. In fact, that's tautological: credit crunches ARE deflation. The feds are throwing money at the markets to try and re-inflate the dollar, but it won't work...at least not right away. Deflation, of course, will accelerate the credit crunch, increase mortgage defaults, and destroy pricing power for businesses. The deflation won't stop until something happens that rectifies all the bad debts and deleverages the economy.

2) Ultimately, though, the dollar is going to get destroyed. The US government can't pay back its debts. Some sort of de facto default is going to trigger a severe inflationary period. This would be avoidable if the feds would pursue the M0=MT option and then permanently cap the money supply. However, they are very, very unlikely to do that. The only other options are extreme confiscatory taxation (very unpopular), or default. The former won't happen without prompting a general uprising, and the latter is an easy way out. Politicians, craven curs that they are, have never shown themselves capable of avoiding the easy way out.

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[info]swingland
2008-11-12 01:58 am UTC (link)
sorry to be one of the unwashed masses, but why do you think there will be total collapse of the DJIA around 2010?

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[info]kenshi
2008-11-15 12:19 am UTC (link)
Mainly, it has to do with the magnitude of the mass-psychological trend cycle which generated the Big Bull in the first place. Such patterns tend to correct themselves in a very predictable way (magnitude-wise...timing is another matter entirely). Those patterns strongly suggest an ultimate bottom for the DJIA below 1000, but at least below 2250.

Also, when markets go so far outside of their historic trend ranges, they typically correct with strong over-reactions in the opposite direction. Looking at the fundamentals, the DJIA and S&P 500 will have to reach P/E ratios below 5:1 in order for this market to return to historic trendline on regression. A quick calculation tells me that a P/E of 5:1 in the DJIA is at least 80% down off the high.

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