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Chris Johnston
ParticipantChris Johnston
iamafuturestrader.comDavid,
Please stay here and contribute, we need some bulls in here for balance. I think your odds based on my model of making a gain like that at the end of a 10 yr upmove, are fairly slim. Remember, the weather as I recall was also nice in the 90’s and land was also scarce, yet RE fell sharply.
If you want to debate cycles, I am the right opponent. However, your decision is made so just enjoy your home and forget about getting reinforcing opinions. I just hope you did not buy the home for appreciation reasons as that is unlikely to happen in the next 5 years from my research.
We could be wrong. I never assume my opinion is correct, as a trader I cannot be that arrogant it is too expensive. The chance of a recession is there but it is far from a certainty. Even if one occurs, people still survive and move on.
Congrats on your place, and stay with us. It is not stupid to buy a house, that is a bit extreme IMO. People are very opinionated about this subject in here for various reasons. I sold in the fall of 2005 just trying to time the market a bit, so obviously I think prices are going to come down. The magnitude is anyone’s guess, but I do not think 50% is going to happen. The last cyle the median dropped about 20% or a smidge more so something on that level is what I am expecting, maybe up to 30%, no more.
Buying a home should be for the reasons you stated except the appreciation portion, any appreciation at any time is a bonus. We have all become RE experts due to the large run up we have had, this does not mean we know anything that others do not.
ParticipantChris Johnston
iamafuturestrader.comLeung – thanks for the update. I suspected it must be available everywhere by now based on some of the emails I have gotten recently. Just find out what I did wrong to get in their bad graces, so I do not repeat the mistake!
ParticipantChris Johnston
iamafuturestrader.comSD – good move, I think you will be pleased in a couple of months. The point I am making is the same one that I put in prior posts. When researching things, the worst thing an individual can do, is formulate an opinion, and then try and make the data fit it.
The data needs to formulate the opinion. This mistake is what is called over-optimizing. It is backwards logic to look at a strong cyclical tendency that has rarely failed and try and find the reasons why it will this time due to a pre-disposed opinion of what you think will happen.
As I said in my prior example, lumber has rallied starting on the 18th trading day of October for 18 straight years. Should I try and figure out why this year will be the one that fails? Or should I buy it on that day and play the odds?
I already know what I am going to do.
There are large picture fundamental reasons why this pattern has repeated over and over. That is all that I need because I am a systematic trader. I do not trade on my opinions, I would be broke if I did.
It is difficult to find a comfort zone if you over analyze things too much. There is always something else to look at that could be “the missing piece.” You just have to line up the probabilities on your side and take the trade.
ParticipantChris Johnston
iamafuturestrader.comDo not over think this one folks.
ParticipantChris Johnston
iamafuturestrader.comOK, I cannot resist anymore. Here is a wall street joke about economists. A group of interns were doing their daily rounds with the head resident. They stopped at each patients bed, and had the interns review the charts. He then asked each one for a diagnosis of the current condition of each patient.
At the end of the rounds, the head resident turned to the group and picked out one individual. He said, “In all of my years of doing this with all of the groups I have taken through the hospital, we have a record.” As the group fell silent, he continued turning to the young man on his immediate right. This is the first time ever that an intern has mis-diagnosed every single patient in the hospital, have you ever thought of becoming an economist?
I do not know why anyone pays any attention to these guys. The UCLA people have been wrong for years about RE, why would anyone think they would magically now be correct. Maybe Thornberg was that intern? Economists are notorious for being incorrect about predictions, ignore them.
Most of the people in here have a better sense about what is going on than these guys do.
ParticipantChris Johnston
iamafuturestrader.comPW – The COT report is a tool to help us gain an advantage to beat the market as a whole. If you straight up test buying with Commercials long vs them being short, there is an increased accuracy, avg per trade, and total dollars made. However, it is not a stand alone rule, just one thing I use to help time my entries.
They are heavily long now as of last Friday’s report which surprised me. I tested the results of buying the SP 500 in August when the commercials were over 90% long on a relative basis, and exiting in October. The results were horrible, and a trade that should definitely not be done. In fact, I then studied the individual situations when this confluence occured, and some big selloffs occurred from exactly this situation.
We do have downside bias starting on the 15th trading day of the month of August which is here. My other indicators that track things are diverging on this rally, so I am expecting it to fail any day. For the record, just to be straight, I have missed this upmove off the lows except in my short term SP 500 trading system, where I made some money but not alot.
We do have this very strong cyclical up bias for this year as I have been talking about. Large institutions are well aware of this bias, and might be front running it here. Time will tell. Also, we have had a nice rally in 30 yr bonds, which is more than likely the main reason for this big move up. Dropping long term rates are very bullish for stock prices.
ParticipantChris Johnston
iamafuturestrader.comYes, the CPI index would be the best overall easy way of evaluating this. You could construct your own proxy index, but you have to be careful when looking back at what it “would have been” at certain times. Often components of things change over time so the “look back” for back testing relationships can lead to false conclusions.
I suggest keeping things as simple as possible, hence the CPI. I do agree it undermeasures true inflation, but still gives us an up or down trend. The trend is what matters more than the actual values themselves.
I do have currency trader friends, but they are very short term. They just keep the money in T-bills in between trades much like I do. Every trader has his own take on what relationships are causitive of price movements. I just urge two things. First, be careful of assumptions just based on an opinion or a belief in what will happen in the future. That belief could be wrong. Second, do your own research and be decisive. Once you make up your mind on something, take your course of action and do not listen to anyone else. It is easy to be dissuaded from your path on things. There will always be very bright people who disagree with your assesments. Stay the course, and go with your convictions.
If you are wrong, learn from it and do not make the same mistake next time. This is what I do. Here is a specific example. Through my research I had determined that a short position in bonds should be put on the very day the McCulley from PIMCO came out and said, “Do not short bonds.”
I never once considered not taking that trade due to this.He has alot more money than I do, and is perceived as a bond guru by people around the world. How could I be short when he said that it the first thing not to do. Well, the market went on the next day to have 6 consecutive down closes. I was right, he was wrong. Now, if I had followed his advice I would have missed a profitable trade.
For those of you that think the dollar is going to get beat down heavily, and we are going into recession, have the conviction to place your money consistent with that outcome. I do not have any magic for this because I do not share that view. Who cares what I think.
Do not look back, do not be swayed by anyone who disagrees. Pull the trigger, and do not look for others to reinforce the view. You have done the research, take the trade!
ParticipantChris Johnston
iamafuturestrader.comIf you call the City they will tell you that a decent portion of Portola had the plug pulled by the builders that were going to build out bigger homes there. I have a client who was waiting on that and is fairly wealthy. When she called to get info she was told by a city planner by name, the developers that had pulled out. Further, they told her there was no future plans to build this other part out. They even told her it was due to lack of demand.
There may be demand for the entry level stuff there, but that project has already been scaled way down. Remember, we are about 6 months behind SD up here in the cycle. Last months housing numbers were awful, even as a bear they worried me a bit. I never expected condo sales to drop close to 50% and SFH close to 40% in July.
I for one do think you can feel the fall is upon us. Even bulls up here are acknowledging that things are deteriorating much faster than they ever thought they would.
ParticipantChris Johnston
iamafuturestrader.comThanks for the nice comments. My research over the years has told me that the real cause effect relationship with Gold has been inflation. There are certainly economic links to the dollar and inflation, but to keep it simple I focus on inflation as the intermarket driver of gold.
Just looking at the CPI and how it has dropped from the mid to late 80’s down into 2000, that in my view is what drove Gold downward. The main point I was making with those projection numbers is that I do not use them. They are widely used in the financial community by “experts.” I just threw them out there as possible destinations. I think I said that I do not use them, I did not reread my post.
I wish I could post charts, every time I try to it just shows as a bunch of wierd looking code. I would love for someone to help me figure that out.
Many big picture tops in commodity prices have been formed by that big run up like is shown in your chart. Then followed by the sharp drop, then another run up like we are in that fails. That is why I am focused on the 574 level. I think if that level breaks the whole run is over for good, so price could drop a long ways if that occurred. It would probably go further than those projections if this happened.
For now the long term trend is still up. The commercials are sneaking back to the long side as of yesterday’s report so this may set up another nice buy spot soon.
The RE/China/Budget deficit angle to this may in fact be correct, it is just not how I as a trader analyze trades. I want to base my decisions on things that are objective, not subjective. I have learned over the years that is the approach that works best for me. I have friends that take the “story” approach that do well, and some that do not. Analyzing the story is a tough undertaking due to the number of different variables that can be considered. It just becomes information overload for me.
In many years past it just seemed that I would often either incorrectly analyze one variable, or leave one out that turned out to be the one that told the tale. There are alot of assumptions out there about big dollar declines, China’s demand equation, and the deficit. However, alot of those are what we all assume is going to happen. There is a saying in the trading world that goes something like this. “What we all assume or are sure will happen, never will.”
In summary, my view is the following on GOLD. The trend for Gold is still up and remains so as long as 574 holds. It appears the “insiders” are starting to buy this dip. If the commercials get over 90% long and a shorter term entry pattern sets up, I will be a buyer of Gold on a breakout of it. If 574 breaks, I will only be looking to short rallies afterward as the game will be over on the long side.
ParticipantChris Johnston
iamafuturestrader.comPW – I do not know about $300, but if that 574 level were to break there is no telling how far it could go. It would be a major top pattern that would indicate lower prices by a significant amount. One way of projecting would be to take the distance from the high of over 700 minus the 574 low and take that amount and subtract it from 574. That is one possible target if it broke down. The other potential target is that same number above subtracted from the highest high it has made recently which was 682. That would give the ABC correction symmetry in the Fibonacci world. People also use 1.27 and 1.44 and 1.618 extensions of these numbers to get to magic points in space. The other way they do it is to take the high less 0 then take .382, .5 and .618 retracements of that difference.
I am not a believer in Fibonacci projections but that is how many people make these projections. Trend is still up for now, but no immediate pattern. If I see one set up I will put it on the blog.
It this all sounds confusing, do not worry these projection techniques although touted as the grail, do not have good track records. I was fascinated many years ago with this school of thought and learned through the school of hard knocks that they are not of much value. If you draw enough lines on a chart something will happen at one of them.
ParticipantChris Johnston
iamafuturestrader.comSD – go to my website and you can sign up for it there. http://www.iamafuturestrader.com. Thanks for your interest.
ParticipantChris Johnston
iamafuturestrader.comPW – google timing the real estate market and it pulls up his stuff. He has a book that I bought which is cheap, and he has a newsletter that he sends out bi-monthly that updates the model he introduces in the book. I have met him and he is a very interesting guy. He is a UCLA grad and knows Leamer and Co very well. He argues with them all the time, because he is much more bearish at this point.
He is interested in trading which is how our connection got started.
ParticipantChris Johnston
iamafuturestrader.comGive me a specific about what is vague and I will try and clarify? I never intentionally post vague comments. I am about as straight forward a person as you are likely to ever meet.
ParticipantChris Johnston
iamafuturestrader.comSD you are dead on about August and September, they are historically bad months to be long the market. I covered the difference in my last newsletter between buying now vs in the fall, and the difference is dramatic. Again, these are general trends that just serve as a beginning spot for setups.
Several things need to fall into place for the fall rally to begin. We need strong bonds, which we currently have. We need to commercials to be heavily long. We also want sentiment to be overly bearish. There are other things, but those are the beginning. Currently we are setup for a drop that I think will begin next week, but could happen any day. Seasonally, the market has weakness through the end of the month beginning on the 15th trading day of the month in August. This rally is diverging in a few ways that are meaningful, foretelling of a drop IMO.
As far as RE goes, the 2008 was based on the 18 year cycle from high to low. 1990 was the high, so that projects to 2008 for the low. Robert Campbell has a timing model that I have made some small changes to that I am going to use when this timeframe comes due to dial in a bit better. His model is terriffic for timing RE,it generated a sell signal in Aug of 2005 for San Diego. He does not discuss cycles at all, that is my work.
Also, I will study this deeply when we get closer to see if there is something else I can find. Things are beginning to look very ugly for RE here in OC, last months numbers were very weak.
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