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Crash or Exhaustion?



Editor's Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.

Prof. Succo -

Glad to see my first comment / question made the site. If anyone has anything intelligent to say about it please let me know.

I am just not sure why no one seems to care about risk at all. I was really shocked at the teletubbies treatment of the news this morning. It was almost cavalier the way they kept highlighting the positives and ignoring any negatives.

That is why I am not sure about the death by 1,000 cuts theory. It's not that I disagree, certainly exhaustion is more plausible than a crash but it doesn't seem like anything will stop the mo crowd. And the debt in the system (derivatives, mortgage and government) can cause a shock that takes us down pretty quickly. In addition things happen much faster these days due to the Internet. I have attached a copy of a newsletter I write and in it I discuss a little bit on my theory on how the Internet changed the game in 1995. Essentially I think the great access to information by everyone is what is making these bubbles last so long - and what could pop them fast.

I think the discussion we should be having is not crash vs exhaustion - it is how should people position their portfolios. I am 40% short, 40% long and 20% cash - though I think my long positions are above average companies (wishful thinking maybe). My short positioning is probably a bit aggressive for some but I am trying to be proactive. That is what makes this environment so dangerous, it is almost impossible to responsibly profit from it.

With that said however it happens this market will go lower and eventually stocks will be hated. That will be the time to buy. Again please let me know if you get interesting feedback from my question.

Minyan Paul

MP -

TV, along with Wall Street, has a vested interest in keeping stock prices up. Interest and commissions fall when stocks go down. If it weren't so sad as to the advice these outlets give on asset allocation, etc., it would be funny. I think cavalier is the wrong word; I think complicit is a better one.

The end game we do not disagree with. The process we don't either; I just offered another possibility.

Of course you are right. We should be talking about asset allocation. I certainly advocate a market neutral approach on equities as long as you feel like you can pick stocks. I don't think I can.

So I will show you personally what my asset allocation is, although I doubt the average person can or would want to obtain it.

15% Gold
40% Cash (which is T-bills)
30% Hedge funds (which is my own)
15% Real estate (I just sold my house in Florida which I owned for
nine years. Ridiculous. I now own only my primary residence)

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No positions in stocks mentioned.

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