Should you be a bear?

Discussion in 'Trading' started by andrasnm, Jul 21, 2002.

  1. Well, today torrential rain is falling, the dikes are giving way, and everyone is getting very nervous – homeowners and those that have been peddling insurance. The authorities maintain a brave face. The speculators always planned on going to the reinsurance market when the heavy rains began to fall, but that market now has a deluge of buyers and no willing writers of flood protection. The flood insurance market is “dislocated,” with players basically stuck with the exposure they have written. Various parties are all the sudden very interested in the financial wherewithal of the cadre of marketplace participants (counterparties). The “conservative” bankers that lent against the homes on the river are in a panic and won’t be financing anymore riverfront building. Confidence in the marketplace is waning rapidly, which only exacerbates the rush to dump exposure to a potential flood. With the flood insurance market in taters, the building boom is doomed.

    The closer the scrutiny, the more apparent that, in the event of a flood, there is going to be a very serious problem – economic and financial. The bottom line is that incredible amounts of inadvisable building (“risk creation”) have occurred over the past few years, and there is nothing that can be done to reduce risk at this point. Unfortunately, the insurance “industry” has little in the way of the necessary financial resources in the event of a flood, and there is little that can be done about this either. It’s a severe structural problem – both for the financial system and the real economy. At the same time, the local authorities have continued to throw additional sandbags on top of fragile levees, with no one wanting to ponder the dire consequences if this frail structure gives way. They say everything is fine, as it always has been. The nervous homeowners are somewhat comforted, but those in the insurance market know otherwise. They are left to pray that it stops raining.
  2. Being a bear doesn't necessarily mean you always think the market is always going to decline. A good trader can go long or short depending on conditions. Nor is a bear a Precter-like hell-in-handbasket, handwringing type.

    A bear respects risk. He knows that risk DOES NOT merely mean more reward, but means the possibility of loss.

    A bear is contrary and rejects the notion popularized in the Emotional IQ book that ingrained optimism is the best. The Emotional IQ book describes the kind of person organizations like. However, the bear has a sturdy seriousness and a cautious attitude about him. He knows fear and realizes that loss is always a near possibility.

  3. Magna

    Magna Administrator

    As a trader, not an investor, I'm neither bear nor bull. My bias continually flips throughout the day and the better I get, the quicker it flips. I am continually going long, going short, going long, etc. I guess you could say I'm "bearish" for a few minutes when I'm shorting, then suddenly "bullish" for a few minutes when I'm buying.
  4. Whatever you do, don't be a pig.

  5. That's the beauty of being a trader as opposed to an investor.

    That's one of the things I love about trading. I could care
    less if the market's up or down. A trader can make money in
    both directions. Actually, I know a pro trader who makes
    70% of his profits on the short side.
  6. Don't forget that this Web site serves to sell a product, and can do so successfully only with scare tactics. Whether the beliefs behind theses tactics have merit or not is a good question.

    Doug Noland wrote 7 pages, but scarcely did he outline a possible and specific scenario for "The Flood". He did not outline how an unwinding of credit excesses would unfold and what consequences there might be. He did not refute Greenspan's argument against a housing bubble.

    He did however, capitalize every use of the word "Credit".

    The problem for me with the nation overborrowing for consumption is default causes a wealth transfer from the solvent to the insolvent and then to their creditors. I carry no consumer debt at all save for a mortgage and I hate hidden taxes like price increases attached to consumer items that serve to absorb risk.
  7. As a trader you have to go with the market at the moment. I would say I was long 80% of the time last week and I made good money.