AlexR

Siegel vs. Standard & Poor's

The author writes:
> 1. Siegel may or may not be correct in asserting that there is a better way — we have not attempted to analyze that

Well Sir, please DO attempt to analyze it. Siegel's argument is self-evidently right.

What Effect Will Hyperinflation Have?

1. If the U.S. really is going down the drain in a big way, tell me why then international stock indexes have fallen much further and faster than the S&P 500 as the crisis intensified?
2. Japan has had persistent deflation for almost 20 years. They have tried very hard to reflate, and so far failed. So much for the "oops" accidental hyperinflation scenario.
3. I have a big 30-year fixed-rate mortgage. Can you say "forget the mortgage, but keep the house"? Hyperinflation just sounds too good to be true. Winning a free house would offset much of the difficulties one would run into during the hyperinflationary transition.

CDS Market: Don't Believe What You See

Thanks for the brilliant, insightful article. I'll add some of my own thoughts:

For the first time in history, "short-selling for dummies" is available in the form of easy-to-understand and easy-to-trade inverse return ETFs. For the first time, you can now short-sell in an IRA, because of these ETFs. For the first time, large masses of uninformed investors will be able to short-sell without first going through the "eye-opening" margin account application process with all the scary disclaimers. For the first time, retail investors can go short without the terrifying risk of "unlimited" losses. And for the first time, novice investors will be able to go short without having to have someone explain to them many times over, how short-selling works.

Remember how many people jumped into the QQQ's after it had gone up 100% the preceding year?

Here is a doomsday prediction exercise. In early 2009, large masses of investors will finally decide to open their year-end brokerage statements. Those who decide to stay on the market will be thinking more seriously about asset allocation. Some will notice the stellar past performance and "low correlation characteristics" of inverse ETFs, and will decide to allocate a chunk of their assets there. Inverse ETFs will receive record capital inflows, leading to short-selling in an unprecedented scale. The market will continue to drift lower for months. People who are not short the market will feel stupid and left out. The "bear bubble" will continue to inflate until the remaining skeptics jump in, leading to a final climax run. Counterparty risk will cause some inverse ETFs to start trading at a discount to NAV. The climax run will be followed by a sharp reversal. In the middle of this one-two volatility punch, at least one counterparty will fail, causing massive unexpected losses. After millions of investors have lost money, the SEC will finally step in and create new restrictions on short-selling, including, banning the purchase of inverse ETFs in IRAs and other non-margin accounts, or maybe even banning them outright.

Four Commonsense Clues to a Genuine Market Bottom

Point#4 is brilliant. Most people don't realize the S&P 500 is really a Momentum Trading strategy which invests primarily in stocks that have been going up, while underweighting all the garbage that crashed with the previous bubble.