Thursday, September 3, 2015

So what's really changed and why the panic

Its like the movie Airplane, when the overhead seat belt signs in the aircraft indicates:  Okay Panic. Being honest for a few minutes with ultra low interest rates, and weak(ish) world economy (US seems to be doing OK, but Europe and Japan are not) and a slowing China (maybe not slowing as much as growing less quickly), the world is not really floundering, its just not performing.

So what has really changed is volatility -- it could be a sign of something else, as it could be just a bout of volatility because there are changes afoot:


  • Oil prices are falling again -- accelerating the shift of ressources from producers (of oil) to consumers; a far more diffused group than the oil producers.
  • Fed Chairman has indicated that interest rate hike(s) are on the way, that makes bonds "one way bet for the past 20 years" done and gone.
  • China -- well the government seems to have lost control ; and has decided that the stock market was a proof of economic virility!  What they do next is anyone's guess.  But when you start arresting investors for doing their job, its a slippery slope
  • Europe (Greece) is showing the limits of democracy -- will the ECB intervene in all European election, when funds will be "held up" until the electorate makes the right decision?
  • Inflation is nowhere to be found (except in assets!); the working class has no pricing power -- and with no pricing power there's no possibility of inflation; median wages are still falling in America (they have been falling since the mid-80s).
  • The US primary process are showing a very ugly side to the American electorate -- who know there were so many racists and bigots there?  Apparently 63% of Trump supporters believe that Obama is a secret muslim born in Kenya (and that's true for 50% of the Republican party members)
When the 2008 credit bubble imploded what amazing everyone in the financial sector (include me) was the extent of the lies; we all assumed that portfolio sellers were "massaging" their portfolio a bit, what we didn't know was that most portfolios were total B.S. because everyone down the line was lying; the mortgage generator where lying, the aggregators were lying, the arrangers were lying. Think Sadam's WMDs where he convinced everyone in his country that he had WMDs.  The USSR in the late 80s, was lying to itself on its productivity, because if you didn't meet your target you got sent to jail! 

Bottom line there are real risks out there that present potential market down scenarios; and investors are freeking out, because after 6 1/2 years of market growth everyone is expecting a correction.  You don't have to be a genius to figure out that there's a huge bubble in the tech sector; many eye watering valuations are based on the same B.S. that was a feature of the  2001 bubble (then it was clicks) now its the number of (unprofitable/free) customers.  The Grill cheese Truck [OTC:GRLD] is the most insane example, but some of the valuations of Airbnb, Uber and others make no sense and little potential for real profits, and don't get me started on Amazon which has NEVER made any money (in a full year).

Anyway, enough of my rant, the only guys that are happy right now are those trading the VIX, banks are pissed because their portfolio just got more expensive to hold (in terms of capital) and harder to hedge.  So to Bill who's been trading VIX for 10 years, its finally your day in the sun (assuming you got it right).

Will the market crash, lots of punters are worried, there's always one "well respected" analyst or fund manager that says its time to buy gold, or go all cash.  The one thing I know for sure, don't panic.


Note:  no position on Amazon, Uber, Airbnb or GRLD.  No VIX position either 

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