Its a massacre

[vegasrenter]

jg,

The double inverse funds seem like a good idea at the time, but the downside can be quick, devastating, and demoralizing. It’s embarrassing to be in 4% money market funds when the market soars, but it destroys your life savings in a month when the same thing happens and you’re parked in double-inverse funds.

You may want to re-think your approach here.

[4plexowner]

bias in the equity markets is heavily in the upward direction – going short is a losing proposition for most people

upward bias is due to:

1. almost all 401K/IRA money is forced into long-only positions and this is mostly buy-and-hold money – ie, there is a long-term steady upward push to equity markets from the monthly injection of retirement money

2. inflation of money supply – currently happening at about an 11-12% rate in US – Russia increased their M-2 money supply by 48% last year – all the central banks are competing to devalue their currencies faster than the other guy – all this new money has to go somewhere and lots of it feeds into the equity markets pushing them upwards

because of the upward bias, shorting the markets becomes a game of short-term timing which most people are going to lose

[Anonymous]

cabana boy, I don’t need a head examination.

Based on my analysis, I put 100% of my money in gold mining mutual funds over ’05 and ’06; my money went up nearly 100% over the two years.

Mark Twain: “Put your eggs in one basket, and guard that basket.”

You’re right, making 10-15% was a piece of cake through ’00. Then, the world changed, and my passive indexing of the S&P 500 and Russell 2000 no longer worked and went nowhere through ’04. I woke up and smelled the coffee, realized that I had to do my own analysis, and have profited handsomely.

I’m happy to go against the herd/crowd if my analysis convinces me of such; deciding not to buy our fifth house has been another bet against ‘common sense,’ and I feel vindicated on that one, too.

[Anonymous]

vegas and 4plex, I hear you. But, the bad economic news is coming faster and faster, now.

Earnings releases for Q1, in April, should be interesting. The weak retail sales for Jan. and Feb. will weigh heavily. Housing permits continue to plummet. Manufacturing continues to move downward. Loan defaults are skyrocketing. Job growth is weak.

I just do not see any good economic news. When such fully hits bank and corporate earnings, folks will do the arithmetic, panic, and we’ll have our correction.

I guarantee it.

[Anonymous]

At some point, maybe in the next 5-10 years, there will be more money LEAVING the equity markets than entering as baby boomers pull their retirement savings and there aren’t enough people to replinish.

But regardless, I agree with jg that there will be major market corrections long before that. There will be major panic once this real estate mortgage ponzi scheme is finally uncovered by the masses.

In the next few years, I expect shorting the market or going long in certain sectors will be the only way to profit for quite some time. The days of buy and hold profit are over.

[tangouniform]

Mr. Clemens (Twain) was not known as a successful investor so I’m somewhat amused by your use that quote in the context of this conversation.

It’s looking like the February drop was simply a shot across the bow of the big movers in the markets. They’ve altered course a bit but I’m not expecting the kill shot into the markets’ boilers. Rather, the subprime loss coupled with the tighening of easy big-money credit will ground the ship The shoal waters can look deceptively calm…

[Anonymous]

Yep, those corporate earnings reports in April are going to be fun. Not a pretty report by Fedex today:

http://news.yahoo.com/s/ap/20070322/ap_on_bi_ge/earns_fedex;_ylt=As4LnI7mJK3JJzhsAObPU0Bu24cA

Fellow Piggingtonians, be the first rats off the sinking ship!

[Happy renter]

jg,

I was trying to tell you double inverse fund is very risky, but you seem to be very confident and knowledgeable about the market.

If your return was 100% over last 2 years, you have enough principal to take the risk.

I admire you have the gut to be so aggressive. My return was 17% last year and I am happy about it. I speculate the market may decline due to the housing market slows down. But it should bounce back within 6 months – 1 year. I always have diversified portfolio and never buy short. But I like know and learn the products in the market. Thank you for sharing your portfolio and strategy with us.

Good luck!

[sdappraiser]

JG –

“I’m champing at the bit to move the remaining 80% of my portfolio into the double inverse fund; should happpen tomorrow (it’s been a painful three week transfer process).”

“Fellow Piggingtonians, be the first rats off the sinking ship!”

Tell me you didn’t.

[Anonymous]

I did, SDA; 100% in. So far, the portfolio is off 15% from its late February peak.

I’m slowly learning a lesson not to bet on humans coming to their senses. And, I am well learning what Keynes meant when he quipped that markets can stay irrational longer than shorters can stay liquid.

I’ll reevaluate the portfolio after the GDP data comes in next week and I see how the markets react.

[DaCounselor]

“Mr. Clemens (Twain) was not known as a successful investor so I’m somewhat amused by your use that quote in the context of this conversation.”
_______________________________________

Warren Buffett, Peter Lynch, George Soros and….Mark Twain???!!!

You certainly don’t need an investor with the credentials of the first three to tell you that putting all your eggs in one basket is generally a very, very bad idea.

[LookoutBelow]

Tip Of the Day: DONT short the market, this is only an anomaly designed to weed out the weak, underfunded playa's…

Sincerely,

B. Bernanke

PS, me and the boys over at PPT have EVERYTHING under control, go back to watching American Idol re-runs. Nothing to see here folks…move along

[Anonymous]

Still, I think jg deserves enormous credit for returning to update this thread when the bet didn’t go his way. You often hear people wildly push a stock, market position, etc, but rarely hear from them again when their position tanks. jg did, and he (she?) just went up a notch in my book.

That said, this is a good example of why diversifying your investments and sticking to a sound investment strategy is so valuable. Admittedly, I’m probably more risk averse than most. But I’m very content with the consistent 7-10% long-term returns you get from a nice blend of stocks and bonds. And by sticking to a well-planned strategy (whether you invest 80% in stocks or 80% in bonds), you both simplify your investing and avoid the temptation to “time” the market.

Of course, some of my past attempts to time the market have been frighteningly accurate…though in the wrong direction! I said up, and the market said down. You could have made a killing by just watching what I did and then doing the opposite. =)

Thanks again, jg. Not only was this a great lesson for everybody, but it was a very honorable thing to do. Top notch.

– peoria

[paranoid]

if you watched the fear indicator of the market (^VIX at yahoo), you should have seen the massive spike of fear at the end of february and beginning of march, and you would have known that that usually indicates at least a short term market bottom. The right strategy was thus to long the market, not short it for the short term. Of course the fear indicator does not tell what will happen in long term. For the long-term, the market may go higher or lower, and JG may still prove to be correct.

[Anonymous]

That’s hilarious, LOB, er, Dr. B.!

Thanks for the kind words, p.

I dunno, paranoid, about the VIX; it seems to give no forward looking information, only a current read (during a tough day on the market, the VIX goes up; on a good day on the market, the VIX goes down). When I plotted and analyzed it with my time-series analysis software, the highest correlation between the VIX and the S&P 500 was at lag zero, i.e., it gives no forward information about movement of the S&P.

Ever the optimist, I hold out hope for the masses to come to their senses next week after the Q1 ’07 GDP growth comes in below market expectations of 2%.

[Author]

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