Matt Blackman

Size Alone Isn't the Key Issue, It's All About Connectedness

Thoma;
Trust you to refer to Wikipedia as a source of financial information. According to a reliable source, the International Swaps and Derivatives Association, Credit Default Swaps at the end of 2007 were not $45 trillion, there were $62.17 trillion CDSs.

The much bigger problem is the size of the overall Over the Counter (OTC) derivative market which was $596 trillion at the end of 2007 and still growing rapidly.

As to the net value of these contracts today due to "self-canceling" of contracts, is that your own invention? It is certainly not supported by the data which shows (as of March 2008), that the OTC derivatives and CDS markets are still expanding.

Relying on theoretic mumbo jumbo to re-work regulatory regimes may seem interesting to you and a few other supercilious academics imbued in the delusion of their own importance, provides no real guide in solving this mess.

In future, before you try to impress us with seemingly esoteric theories, at least do us the courtesy of using reliable sources...

Five Challenges Ahead as the Corporate Soup Lines Grow

Daniel;
I wish you luck because history is not on your side. I have done some fairly extensive research on the election cycle and the two years after a US election are hard on all markets and stocks pretty much world wide. The ratio for the Dow/SPX since 1902 works out to 93% of the gains occurred in the 26 months leading up to each election versus just 7% in the 22 months after. As well with the exception of the relatively short-lived Oct 1987 meltdown, every single major bear market and recession since WWII has occurred in the 2 years after a US election. The ratio of the Toronto TSX for the 2 years pre-election versus post-election since 1950 is 97:3 or 32:1. Not a very attractive probability (see tradesystemguru.com/co... )

Lehman's Collapse: Broader Economic Damage Unlikely

JD - Picking a bottom is a dangerous practice as you well know which you did with your seekingalpha.com/artic... article in March.

At this point, the Fed and Treasury have shown they have little idea what is going on and even less ability to do anything about it. As far as economist and investors, many are still living in denial and continue to religiously put stock (pun intended) in the traditional economic indicators - most of which have been rendered useless by statistical meddling.

As to calling bottoms; if you keep calling them often enough, you will eventually be right. The only problem is by then your credibility will be completely shot and your portfolio (assuming you've been trading or investing on your own advice) in similar shape.

I outline the macro challenges that I see lie ahead in seekingalpha.com/artic... the greatest threat being that we are in a period of the unwinding of the greatest number and scope of asset bubbles in history... Such periods have ended neither happily or quickly.

Five Challenges Ahead as the Corporate Soup Lines Grow

Daniel K. just reading your website and compared to you I'm downright giddy! ;-O worldworststockpicker..../

Good job though and an interesting analysis! So are you giving away Cramer's book for giggles and laughs?

Five Challenges Ahead as the Corporate Soup Lines Grow

Daniel K. I am a trader, not an investor. My research tells me that fundamentals, while useful in a longer-term trend to confirm the move (i.e. if fundamentals are supportive of the move its a good thing), do a lousy job of getting you out in time especially at turning points. Right now the fundamentals longer-term like real earnings, election cycle, increasing debt and increasing reliance on foreign buyers of debt look bearish. We are now in the process of breaking the largest number and size of asset bubbles in history which I have seen coming since 2005.... (My first published article on the US housing bubble was in the Oct 2004 issue of SFO...) In my opinion, buy and hold investors are taking a tremendous risk by staying in long-term stock positions.... as I think I said in my Two-Ton Wall Street Conflict of Interest article seekingalpha.com/artic...

However, my primary approach to markets is technical: I watch the charts, take a quick look at the fundamentals to see if they support the trade and make my buying and selling decisions accordingly...

But you bring up an interesting point. Larry Williams once said in a seminar that he is pessimistic every time he enters a trade, and he expects to lose. That way he won't overstay his welcome and ignore his stop loss. In other words, if his trade hits his stop, he quickly exits and doesn't ignore the signal because that is what he is expecting..... Its counter-intuitive when you think about it. Traders by nature are generally optimistic. But that can keep you in a trade longer than you should be and bankrupt you.

Nukldrager - Good point. I need to check the latest BIS (Bank of International Settlements) derivatives data. The problem is that is lags by about 6 months. But from the data I have been seeing, the size of the derivatives market began shrinking in late 2007.... Will take a look at it an do an article update when I have the info....

Cheers,
Matt

Analysts See Dow Rising Sharply in 2008

I wonder what the analysts' track record is? They rarely mention that in such forecasts. Correct me if I'm wrong but wasn't Abbey Cohen bullishly optimistic in January 2000 as the market was peaking and didn't Glassman predict a Dow of 36,000 in 1999? And who can forget Henry Blodget?

I would bet that fundamental analysts have a similar accuracy to economists and here is a report on their accuracy at predicting economic slowdowns...

"In 1929, days after the stock market crash, the Harvard Economic Society reassured its subscribers: “A severe depression is outside the range of probability” In a survey in March 2001, 95% of American economists said there would not be a recession, even though one had already started. Today, most economists do not forecast a recession in America, but the profession's pitiful forecasting record offers little comfort." – Economist November 15.