I'm a Slow Learner

[Zhong Lu + 845]

Normally what happens when something goes wrong is I run away and trade something else.  If something is tanking, that means something else is going up.  For example if the market tanks, gold should do ok.  If oil prices tank, natural gas prices should rise, etc. 

This has not worked because currently EVERYTHING is being sold off.  Took a pretty big hit before figuring this out.  It didn't matter where I ran.

We'll see what happens at 2000 for the S&P but if that doesn't hold, this is the drop that takes us to 1500, which I actually prophesized in an earlier thread.  I just didn't realize it'll be THIS early (the stock market will initially go up, but within 10 years of Trump's election the S&P will hit 1500 due to a crisis of confidence).  

Either way, we'll see what happens at 2000.  But yeah.  Markets might be in even deeper trouble then I had earlier thought.    

Edited March 19, 2020 by Zhong Lu

[Zhong Lu + 845]

It's not just the corona virus anymore.  At this point we have a financial crisis.  

[Zhong Lu + 845]

Either way, if it opens red, but not limit down red I'll be buying in the morning.  

[0R0 + 6,251]

20 hours ago, Zhong Lu said:

Normally what happens when something goes wrong is I run away and trade something else.  If something is tanking, that means something else is going up.  For example if the market tanks, gold should do ok.  If oil prices tank, natural gas prices should rise, etc. 

This has not worked because currently EVERYTHING is being sold off.  Took a pretty big hit before figuring this out.  It didn't matter where I ran.

We'll see what happens at 2000 for the S&P but if that doesn't hold, this is the drop that takes us to 1500, which I actually prophesized in an earlier thread.  I just didn't realize it'll be THIS early (the stock market will initially go up, but within 10 years of Trump's election the S&P will hit 1500 due to a crisis of confidence).  

Either way, we'll see what happens at 2000.  But yeah.  Markets might be in even deeper trouble then I had earlier thought.    

Cash is an investment too.

When all are leveraged cash's value becomes the reciprocal of the leverage in its buying power of assets. 

There has been a large degree of leverage via options and futures embedded within hedge funds and private accounts. Due to Dodd Frank the investment banks were made into banks and were charged with limitations on proprietary trading. So the entire industry moved out of the investment banks where you could at least track what was going on - to hedge funds and pool accounts where nobody can even figure out what the leverage is. Much of the business was composed of selling volatility. That trade is part of what has been unraveling this month. The dash for cash - essentially raising enough cash to run the missing portion of the economy, about 30% of it or worse for 2 months with no revenue. Meaning 30% X $22 Trillion X 2/12, or $1.1 Trillion, and then another equivalent amount for the near future beyond that. That means that you need to unwind ~3X that in levered assets to clear balance sheets in the general economy, while banks need to issue that much credit and clear their own balance sheets - with their own self imposed capital risk controls, regardless of the ones from the government and the Fed. Then there are Eurodollar market players needing to raise about the same amount of cash (the Eurodollar system is a bit larger than the US financial system, and uses the US system to back it up). As all this goes to cash, about $4 Trillion worth, the volatility sellers are being handed their heads and forced to sell assets, thus breaking long standing statistical relationships on which trades were based. 

The one thing nobody though of is what might not correlate when there is a mad dash for cash to the tune of $8 Trillion. Well, only cash. 

[Ward Smith + 6,615]

14 hours ago, 0R0 said:

Cash is an investment too.

When all are leveraged cash's value becomes the reciprocal of the leverage in its buying power of assets. 

There has been a large degree of leverage via options and futures embedded within hedge funds and private accounts. Due to Dodd Frank the investment banks were made into banks and were charged with limitations on proprietary trading. So the entire industry moved out of the investment banks where you could at least track what was going on - to hedge funds and pool accounts where nobody can even figure out what the leverage is. Much of the business was composed of selling volatility. That trade is part of what has been unraveling this month. The dash for cash - essentially raising enough cash to run the missing portion of the economy, about 30% of it or worse for 2 months with no revenue. Meaning 30% X $22 Trillion X 2/12, or $1.1 Trillion, and then another equivalent amount for the near future beyond that. That means that you need to unwind ~3X that in levered assets to clear balance sheets in the general economy, while banks need to issue that much credit and clear their own balance sheets - with their own self imposed capital risk controls, regardless of the ones from the government and the Fed. Then there are Eurodollar market players needing to raise about the same amount of cash (the Eurodollar system is a bit larger than the US financial system, and uses the US system to back it up). As all this goes to cash, about $4 Trillion worth, the volatility sellers are being handed their heads and forced to sell assets, thus breaking long standing statistical relationships on which trades were based. 

The one thing nobody though of is what might not correlate when there is a mad dash for cash to the tune of $8 Trillion. Well, only cash. 

No one learned the lesson from Long Term Capital Management. They were worshipping at the altar of Black Scholes and all was peachy and keen, until the wonks found out that the calculus falls apart when there are big gaps in the trading range. Being leveraged to the hilt doesn't help a bit, unsurprisingly.