T Nation

Market Predictions. Ignorance on Display

All right…
I have been watching the markets very closely for months now. For those that don’t know my methods, I use a combination of charting, cycles, fundamentals along with other peripheral inputs. I’m not a professional by any means. I have turned $15K into $100K in less than 6 months. I have also lost $100k in a year. So take anything I say with a grain of salt.
I thought it would be fun to make some predictions and update them on a daily basis.

My biggest prediction, I think we have seen the highs for the year in the DOW, S&P and Nasdaq. My charting allows for another 100 points in the Dow (actually up to approx. 10800) so the S&P and Nas have comparable wiggle room. I don’t think we’ll need it though.

The top for Gold is in. The $1227 high will not be seen again for the rest of the year. $1000 will be the next point, and ultimately we will see $700 before any long term bottom is seen.

The 74.21 level in the DXY is the low. We won’t see it again anytime in the next year (and then some). The dollar will progressively strengthen throughout the year.

The word that you will start to hear more and more over the coming year is Deflation. Bank failures will turn up over the coming year. Even with the FDIC, check the strength of your bank. Go to thestreet.com to do this. See how well capitalized they are, and where they have invested your money. How likely are they to be able to liquidate should they need. You will be surprised. The strongest banks you are likely to find will be smaller banks in rural areas. If your bank is weak (and it probably is) move your money to one of the top two banks in your state. Truthfully, I would say keep as little as you can in a checking account to manage bills. If possible, keep a decent amount within safe reach. I nice big, heavy gun safe is a good idea.

If you have the heart for it, short the S&P by way of the SPY (spiders). Bigger balls, use the SDS (200% inverse). Really, really big balls, use options on each of these. I am using the SDS in my IRA. I will be trading options on the SPY and SDS in my regular account.

I am aware that I am setting myself up for abuse. Either way, I think it will be fun.

Progress so far…
I started shorting the S&P on Monday using march 113 puts. Tues afternoon the chart looked wrong so I got out at a 10% return. I re-entered this position yesterday. Working well so far.

You have done much better than me, I have regained not even 10% of what I lost.

The market will begin to crash again as ARMS reset, Optional Arms, Liar loans, and 250 billion in Commercial real estate loans are redone. Will start in Q2-Q3.

[quote]JEATON wrote:

The word that you will start to hear more and more over the coming year is Deflation. Bank failures will turn up over the coming year. Even with the FDIC, check the strength of your bank. Go to thestreet.com to do this. See how well capitalized they are, and where they have invested your money. How likely are they to be able to liquidate should they need. You will be surprised. The strongest banks you are likely to find will be smaller banks in rural areas. If your bank is weak (and it probably is) move your money to one of the top two banks in your state. Truthfully, I would say keep as little as you can in a checking account to manage bills. If possible, keep a decent amount within safe reach. I nice big, heavy gun safe is a good idea.

[/quote]
Deflation? I am graduating soon with my economics degree and i’m just interested in how you’ve come to this conclusion. Especially considering this idea that inflation is bound to hit when bank lending picks up. I can see relatively little inflation, considering once inflation picks up the fed might sell treasuries to counter too much inflation. Then again I dont really know how markets truly work, so please fill me in.

[quote]moneymike88 wrote:

[quote]JEATON wrote:

The word that you will start to hear more and more over the coming year is Deflation. Bank failures will turn up over the coming year. Even with the FDIC, check the strength of your bank. Go to thestreet.com to do this. See how well capitalized they are, and where they have invested your money. How likely are they to be able to liquidate should they need. You will be surprised. The strongest banks you are likely to find will be smaller banks in rural areas. If your bank is weak (and it probably is) move your money to one of the top two banks in your state. Truthfully, I would say keep as little as you can in a checking account to manage bills. If possible, keep a decent amount within safe reach. I nice big, heavy gun safe is a good idea.

[/quote]
Deflation? I am graduating soon with my economics degree and i’m just interested in how you’ve come to this conclusion. Especially considering this idea that inflation is bound to hit when bank lending picks up. I can see relatively little inflation, considering once inflation picks up the fed might sell treasuries to counter too much inflation. Then again I dont really know how markets truly work, so please fill me in.[/quote]

The following is a repost, but it contains basic building blocks necessary for further explanations

"The monetary base is coin, paper and commercial banks’ reserves with the central bank.
Money supply is the total amount of money available in an economy at a particular time. It includes all of the monetary base plus all of the additional money created through credit via the process of fractional lending.
The money multiplier measures the amount the money supply increases above and beyond the monetary base.
Therefore, if deposits are up and the coin and paper remain constant, then commercial reserves would be increased (but only reserves, which remember are only a fraction of the total money supply).

Now, if deposits are up but the money multiplier is the same, then you DO NOT have more money being lent. Actually, it would appear that less money is being lent. You simply have larger reserves on hand.

Expansion of money supply is primarily accomplished through the issuance of credit/loans through the process of fractional lending. That is the purpose of the money multiplier, to determine the amount of money that has been created through fractional lending, above and beyond the monetary base.

If the money multiplier is decreasing then it means that existing loans/credit is being retired at a greater rate than new loans/credit is being created. The money supply is shrinking. (Deflation)

Central banks mandate reserve requirements, the fraction of demand deposits that have to be kept on hand for the purpose of redemptions. In this way they can limit or control the amount of money creation. They also insure that the banks have enough cash on hand to cover normal withdrawals.

So what happens if a “black swan” event occurs and an abnormally large amount a people show up at once to redeem cash? This is a bank run or systemic crisis, such as happened in the GD. The central bank has devised methods to divert such events. They regulate banks, insure deposits, and act as a lender of last resort.

This seems to have worked just fine for the last eighty odd years. Then again, we have not experienced economic conditions and the gross negligence of that period, at least until now.

The public is for the moment pacified by the belief that if something were to happen at their bank that they are insured by the government and therefore have no risk of loss. They forget that they are the government, and also that the funds that are set aside to cover such loses are finite. Again, the system is set up to handle normal events and failures just as fractional lending is set up to handle normal rates of withdrawals with a added protection factor figured in. Black Swans are not accounted for.

Finally, I think part of the confusion lies in fully understanding money creation. When a loan is made, the borrower receives the funds for the intended use. Money supply is increased. However, the monetary base is not. That is the reason a multiplier is needed in the first place. It is not as if a call goes up to the Federal Reserve, they call the Treasury Dept., and the printing presses are started up. An amount of paper currency equaling the loan is not created and then shipped to the originating bank. Remember, it is fractional lending.

Now, before I start getting pounded, yes there are mechanisms in place by which additional currency can be created and put into circulation. However, it is relatively rare and not anywhere on the scale of which would be required to offset deflationary pressures if and when they occur. If they did do so, it would take a matter of time just to offset the real difference between the monetary base and the money supply. In the beginning they would simply be replacing credits on an electronic ledger with real bills."

The above was posted in response to a statement about the money multiplier and its importance. Not relevant here, but it puts it in context.

Again, I am not a professional. I do not have a degree in economics. I do have an MBA, for what it is worth (very little). I often feel like the character in “Good Will Hunting” in that I have learned much more in life with a library card and internet access than I have in years of school.

Also, you state that that inflation will hit “when bank lending picks up.” We have had well over a year of intense efforts by the government to inflate the economy and get banks to lend. We have had a very good ten months in the markets in anticipation of this. However, actual lending has barely increased. I believe that going forward we will see even less.

Put it all in perspective, however. I am not saying that deflation is permanent. I do think that the next year to two will be very interesting.

I will be glad to answer any specific questions you have. Post away.

Day 1 results:
DJIA closed down 101 pts to 10,609
S&P 500 closed down 12.46 to 1136
Nasdaq closed down 28.75 to 2288
Gold down over $11 to $1131
Oil down $1.38 to $78

So far, so good. The market tried to rally into the close. My guess is it will carry over a little on Tuesday (markets closed on Monday). If it does, I will use the opportunity to increase my existing positions.
I will be using the highs of yesterday in the Dow and S&P as my limits. If it retraces to these highs, I’m out and will reexamine my strategy.
My puts (march 113 strike on the SPY) were up 8.5% today. That’s 18.5% in two days. I’ll take it.

For the record, I am basing most of the above on a particular pattern I have watched develop over the last few months. If I am interpreting it right, it is virtually always a concluding pattern for a particular direction trend. The tricky part is that stock market patterns tend to be fractal in nature. This means there are patterns within patterns within patterns. If you are interpreting the scale or degree correctly, you are great. If not, you will succeed in the short term and then get whip lashed.
In addition, I use Fibonacci ratios, fundamentals and good ole gut instinct.

For those that care, I will update the market happenings later this afternoon. I have a meeting to attend, and then I have to prepare my first serving of crow.

I will evaluate my stance and see what, if any, changes need to be made.

I won’t attempt to give you feedback on your predictions, because you are humble and you admit that through the Thread Subject Title.

I think gold can go as high as 1300. That is all.

Sorry for the delay. Internet was out most of the afternoon and night. (Short Comcast!)

Frustrating day, in that it did just enough to confuse, not clarify. I used the previous days highs as a stop. In that way, I got out basically even if the market retraced more than I thought the pattern called for.

First rule, protect your money. Use stops. Don’t get married to your view or theory, especially in the short term.

DXY is avove 78 as I write this. Gold is behaving as planed. Futures are down this morning. Overall, I have to say that I still stick to my plan and thoughts above. My theory for the rise yesterday was that the markets anticipated a brown win, and responded in like. Healthcare stocks were up strongly. The only thing that puzzles me is that the market was priced for perfection, and the first six big earning reports were not good. Yet, the market has held up reasonably well. Another asset bubble perhaps in the making?

Anyway, I will watch the action to day and fine tune my strategy.

Overall results, day three and I am back to even.

Ok, Day 3

Back on track.
DOW down 122 after being down over 200 earlier in the day.
NASDAQ down 29
S&P 500 down 12
Gold down $28 at last glance
DXY (dollar index) up 78.58

The talking heads predicted an up day on Wall Street as the markets celebrated the Brown win in Mass.
That’s not what they got. Markets were down across the board. Particularly interesting was the fact that you have a day where international banking (HSBC, China developments) send a ripple of fear through the markets. Is gold up strong? No, gold is down $28 an oz and the dollar is up strong.
Gold is at a resistance level, and should experience a short term bounce. If not, it won’t be a good sign.

I expect a little follow through on the bounce in the morning. I will be looking to resume my short position through put options on the spiders (SPY). I maintain a 50% position in SDS in my IRA.

See ya’ tomorrow.

The markets are really going to hell, huh?

Is the double-dip upon us?

Good day to be me!
I will follow up with an update later.

Good day. Expect more of the same over the next few days. Oil, Gold, Silver, equities all falling.
DXY up strong.
All things seem to be following the plan.

[quote]archiewhittaker wrote:
The markets are really going to hell, huh?

Is the double-dip upon us?[/quote]

Classic W curve.

Prepare for another mini dump in the markets, followed by a rise from early 2011-2012. But in 2013, shit’s gonna stir again with the maturing of all the bonds that were refinanced in '08.

[quote]jo3 wrote:

[quote]archiewhittaker wrote:
The markets are really going to hell, huh?

Is the double-dip upon us?[/quote]

Classic W curve.

Prepare for another mini dump in the markets, followed by a rise from early 2011-2012. But in 2013, shit’s gonna stir again with the maturing of all the bonds that were refinanced in '08.[/quote]

What do you base this prediction on?

[quote]JEATON wrote:

[quote]jo3 wrote:

[quote]archiewhittaker wrote:
The markets are really going to hell, huh?

Is the double-dip upon us?[/quote]

Classic W curve.

Prepare for another mini dump in the markets, followed by a rise from early 2011-2012. But in 2013, shit’s gonna stir again with the maturing of all the bonds that were refinanced in '08.[/quote]

What do you base this prediction on?[/quote]

A mixture of thoughts from a well-regarded finance professor (with an economics background) at my university and restructuring advisory investment bankers.

Day 5

What can I say. It is weeks like this that keep you in the game…IF you are positioned correctly.
Major indexes off between 4% and 5%. Gold at a one month low. Dollar stronger and holding.

Caution! Read the following with care. Results not typical. Use extreme caution when handling options.

My S&P short position was up 37.5% today. If not for an slight execution error earlier in the week, the whole position would be up almost 100% for the week. As it sits, I am still up over 65%.
It is important to note that had my analysis been wrong, I would be down the same amount, assuming I did not use stops (always use stops, ALWAYS).

I left my position open, as I believe that we have at least one more leg down before we can launch a short term partial retracement.

In summary, I think we have one more leg down in store before a short term bounce. I will be looking to unload as close to the bottom as possible and scaling back in on the way up.

We’ll see what happens Monday…

I agree on some of the major sentinments from a macro view. I still think theres money to be made in the right industries though with out shorting. I feel natural gas is a long play… i bought chesapeake and plan on buying more. How do you feel about that JEATON?

As for the dude with the Econ degree… I feel you, though I am suprised you dont understand how markets and monetary base works…that shit was covered in my curriculum. I would recommend a corporate finance class to get involved in the nitty gritty of balance sheet analysis. Though alot of that you can find on investopedia. Use your degree to think about the big picture, but then buy downwards. Of course I could be full of shit because I am new to this.

[quote]666Rich wrote:
I agree on some of the major sentinments from a macro view. I still think theres money to be made in the right industries though with out shorting. I feel natural gas is a long play… i bought chesapeake and plan on buying more. How do you feel about that JEATON?

As for the dude with the Econ degree… I feel you, though I am suprised you dont understand how markets and monetary base works…that shit was covered in my curriculum. I would recommend a corporate finance class to get involved in the nitty gritty of balance sheet analysis. Though alot of that you can find on investopedia. Use your degree to think about the big picture, but then buy downwards. Of course I could be full of shit because I am new to this. [/quote]

To paraphrase an old saying, “A rising tide lifts all boats.” The correlate is that a lowering tide can wreck them.

My thoughts would be why fight the current? If the markets are going down, work with it. (If they are going down. I could be wrong).

As for natural gas, I don’t know. I don’t follow it. My gut tells me that in a deflationary environment, most commodities will go down in price. I see no reason natural gas would be the exception. Of course, all this assumes that you are looking for stock appreciation and not dividends (which would probably have to be lowered in a deflationary environment).

[quote]JEATON wrote:
All right…
I have been watching the markets very closely for months now. For those that don’t know my methods, I use a combination of charting, cycles, fundamentals along with other peripheral inputs. I’m not a professional by any means. I have turned $15K into $100K in less than 6 months. I have also lost $100k in a year. So take anything I say with a grain of salt.
I thought it would be fun to make some predictions and update them on a daily basis.

My biggest prediction, I think we have seen the highs for the year in the DOW, S&P and Nasdaq. My charting allows for another 100 points in the Dow (actually up to approx. 10800) so the S&P and Nas have comparable wiggle room. I don’t think we’ll need it though.

The top for Gold is in. The $1227 high will not be seen again for the rest of the year. $1000 will be the next point, and ultimately we will see $700 before any long term bottom is seen.

The 74.21 level in the DXY is the low. We won’t see it again anytime in the next year (and then some). The dollar will progressively strengthen throughout the year.

The word that you will start to hear more and more over the coming year is Deflation. Bank failures will turn up over the coming year. Even with the FDIC, check the strength of your bank. Go to thestreet.com to do this. See how well capitalized they are, and where they have invested your money. How likely are they to be able to liquidate should they need. You will be surprised. The strongest banks you are likely to find will be smaller banks in rural areas. If your bank is weak (and it probably is) move your money to one of the top two banks in your state. Truthfully, I would say keep as little as you can in a checking account to manage bills. If possible, keep a decent amount within safe reach. I nice big, heavy gun safe is a good idea.

If you have the heart for it, short the S&P by way of the SPY (spiders). Bigger balls, use the SDS (200% inverse). Really, really big balls, use options on each of these. I am using the SDS in my IRA. I will be trading options on the SPY and SDS in my regular account.

I am aware that I am setting myself up for abuse. Either way, I think it will be fun.

Progress so far…
I started shorting the S&P on Monday using march 113 puts. Tues afternoon the chart looked wrong so I got out at a 10% return. I re-entered this position yesterday. Working well so far.
[/quote]

Goat fucked. We are goat fucked.