The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market Ends

[hayekvindicated]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

I agree with you... but you forgot to put the big "YET" at the end of that. Since I joined the site, I have beat inflation. If high inflation does come like EJ predicts, then I fully expect to do very well. If it does not, well shit, I still have some cash to buy the deflated stuff.

His call for a market crash was wrong and cost me chunk of change in my lost bet (puts). EJ greatly underestimated the effectiveness of government intervention in the financial markets. If Faber says to get out now, then just buy some puts and enjoy your future gains.

True. it would be unfair to subject anyone to this kind of scrutiny over just one year. But the iTulip gold+UST strategy has been in place since 2001. And the average return over that period has been 7 percent. If inflation has averaged 9 percent over that period (according to Shadowstats), then over a ten year horizon, people have lost 2 percent annually in real terms. That's BAD.

Faber hasn't said that he expects a huge crash. He has gone on record saying that if the DOW goes below 8000, they will print money like crazy. I don't doubt this in the least. The absolutely WORST place to be in the next few years will be government bonds. Harder to stay how stocks will perform, but Im sure that if the Dollar tanks hard, stocks will outperform bonds quite easily - past history indicates that in severe inflationary environments, stocks outperform bonds by a healthy margin.

Speaking for myself, I have been fortunate to have enjoyed double digit returns since 2004 - last year was the only year when I ended flat. 08 was a great year and I averaged between 35 and 40 percent that year.

[aaron]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Speaking for myself, I have been fortunate to have enjoyed double digit returns since 2004 - last year was the only year when I ended flat. 08 was a great year and I averaged between 35 and 40 percent that year.

So YOU were on the opposite side of all of my "investments". I want my money back!

[hayekvindicated]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

So YOU were on the opposite side of all of my "investments". I want my money back!

LOL!! unlikely. I didn't short the stock market in 08.

[bart]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Aaron, is being "up" enough? If inflation in real terms is running at 9 percent and you make 7 percent year on year using the iTulip gold+UST strategy (which I've never followed), you are actually losing money every year (though at a lesser rate than those who chucked everything into the stock market back in 2000).

Perhaps EJ made so much money in the dot com boom that he can afford to lose 2 percent every year (if one uses shadowstats' measures of inflation rather than the CPI which indicates that inflation in the last decade was more like 9 percent). But if you are young and ambitious and want to beat inflation in real terms, 7 percent returns year on year don't cut it. You need to be making double digit returns on an average just to beat inflation and experience positive inflation adjusted returns. Anyone who is using this site for that purpose will not succeed in doing that. Perhaps a disclaimer to that effect is in order.

Can you please give it a rest? That's about 5 posts that rip EJ and iTulip.

I got it.

[Alvaro Spain]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Aaron, is being "up" enough? If inflation in real terms is running at 9 percent and you make 7 percent year on year using the iTulip gold+UST strategy (which I've never followed), you are actually losing money every year (though at a lesser rate than those who chucked everything into the stock market back in 2000).

Perhaps EJ made so much money in the dot com boom that he can afford to lose 2 percent every year (if one uses shadowstats' measures of inflation rather than the CPI which indicates that inflation in the last decade was more like 9 percent). But if you are young and ambitious and want to beat inflation in real terms, 7 percent returns year on year don't cut it. You need to be making double digit returns on an average just to beat inflation and experience positive inflation adjusted returns. Anyone who is using this site for that purpose will not succeed in doing that. Perhaps a disclaimer to that effect is in order.

Hayek, I am quite happy with my 30% investment in gold, especially since I bought the gold with the euro at 1.50 dollars . I understand that you are looking for even more upside than this, and I respect your point of view. I surmise that you read some good financial reports and I would like to ask you, which analyst or newsletter would you recommend? Thanks for your reply.

[we_are_toast]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Your criticisms of the recent accuracy of iTulips/EJs analysis is fair. And I'm not too fond of the way they danced around some of the analysis that didn't appear to hold up, like the unemployment call, and the DOW call.

But I've yet to find a place where the logic behind an analysis and the data supporting the analysis is presented in such detail. Not only is it presented, but it's offered up for criticism by the entire community. When someone explains in such detail the reasons they believe things are the way they are, or why they believe an event will happen in the future, it no longer becomes their call, it becomes my call. I can either chose to agree with the data and reasoning offered, and take some action, or I can disagree and not take an action.

But if someone tells me to buy stocks because the market is oversold, or to buy gold because we have a fiat currency and the Feds printing money, I have nothing to go by but their word. It truly is their call and I'm simply rolling the dice that they know what they're talking about. If someone can show me a consistent track record of accuracy over the last several years, I'll roll the dice a few times and see what happens. And if someone shows me careful analysis that is consistently wrong, I'll have to conclude there is something fundamentally wrong with their approach.

I really believe it is different this time. We are in uncharted waters in more than just the economy. It's more important to me now than ever that I know there are good reasons to risk my hard earned dollars. I'm often amazed that under these crazy economic conditions that anyone would even try to make a forecast. And I really appreciate all the comments and information that gets posted here at iTulip, even the ones I strongly disagree with. In the end I have to make my own decisions and I have to find what I believe to be the best source of information to help me make those decisions. I guess that's why I'm posting this here at iTulip.

[jiimbergin]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Well said. You summarize my feelings exactly.
jim

[D-Mack]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

How can three US based rating agencies with a horrible record or even criminal history(housing/credit bubble), trigger or amplify a european crisis?

Ohio Funds Sue S&P, Moody’s, Fitch

04-29-2010 | Source: emii.com
Ohio’s attorney-general, Richard Cordray, has filed a suit against Standard & Poor’s, Moody’s Investors Service and Fitch Ratings, on behalf of five public employee retirement and pension funds, Financial Times reports. Cordray accused the agencies of providing unjustified and inflated ratings of mortgage-backed securities, in return for fees from securities issuers.
The attorney general alleges that the rating agencies misrepresented the mortgage-backed securities a safe and assured the employee pension funds that they had highest credit ratings and the lowest risk. According to the AG, the improper ratings cost Ohio funds losses of more than $457 million.

http://www.emii.com/Articles/2476319...dys-Fitch.aspx

ECB Scraps Greek Collateral Rules Indefinitely (Update1)



“The Governing Council of the European Central Bank has decided to suspend the application of the minimum credit rating threshold in the collateral eligibility requirements for the purposes of the Eurosystem’s credit operations in the case of marketable debt instruments issued or guaranteed by the Greek government,” the Frankfurt-based central bank said in a statement today. “This suspension will be maintained until further notice.”
Downgrades from credit-rating companies had threatened to render Greek bonds ineligible for collateral for ECB loans after Standard & Poor’s last week downgraded the nation to junk status. Had Moody’s Investors Service and Fitch Ratings followed suit, Greek bonds would have no longer been accepted under the previous rules, threatening to inflict further pain on the economy and its banks.


http://www.businessweek.com/news/201...-update1-.html

[flintlock]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

Well said. You summarize my feelings exactly.
jim

Same here. Especially this part, " I'm often amazed that under these crazy economic conditions that anyone would even try to make a forecast."

I will say however that I have also considered the fact that maybe the Itulip thesis is more geared for wealth preservation than growth. Neither is necessarily better than the other, just different goals for different people in different situations. At times I have a sinking feeling that we may look back 10 years from now and see these days as the end of an era when you could actually make money investing.

[Ben]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

It's important to bear in mind that iTulip is primarily about long-term asset allocation (the only site I know that does it so well).

We shouldn't forget that buy and hold gold in 2001 was the trade of the decade. It delivered you ~15% p.a. consistently, during a time when stocks have fallen about 20%.
Buying government bonds in 2000 was the second best buy-and-hold asset class decision.

(The possible exceptions are commodities and emerging markets, but these involved FAR more volatility.)

Of course, if you can effectively outperform the stock market or time your entrances, you could have beaten gold, but that's not what iTulip is about.

Not re-entering the stock market March 09 seems like a less serious mistake when viewed in this context. (More accurately, he said there would be a rally, leaving it open for readers to participate, but incorrectly forecasted that it would last for under a year).

I think where EJ went wrong is not only in underestimating the effect of govt stimulus on the market, but more importantly, he missed the observation that US markets tend to always rally for at least 2 years after the end of a 20%+ decline bear market (even more so after 40% declines). That's how the stockmarkets tend to go. I view this as a strong reason to re-enter the market last year, and a reason to stay in the market for another year or so, with caution increasing as time goes by.

However, I appreciate how EJ laid out his reasons for this belief:
1. The market never became cheap
2. In Japan, there was a significant correction after about 1 year
3. There's no sustainable recovery in the real economy. The market will head down again if stimulus is removed.
4. There are serious potential problems like inflation, the china bubble and sovereign default that could cause a sharp sell-off
These factors mean that it's reasonable to predict a renewed bear market sooner than ever before after the end of the last one (also, the sample size on these severe bear markets is pretty low, so it's difficult to know how good a guide history is in this case). Staying aware of these issues is going to help us avoid another 30% shave in our stock holdings.

[metalman]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

It's important to bear in mind that iTulip is primarily about long-term asset allocation (the only site I know that does it so well).

We shouldn't forget that buy and hold gold in 2001 was the trade of the decade. It delivered you ~15% p.a. consistently, during a time when stocks have fallen about 20%.
Buying government bonds in 2000 was the second best buy-and-hold asset class decision.

(The possible exceptions are commodities and emerging markets, but these involved FAR more volatility.)

Of course, if you can effectively outperform the stock market or time your entrances, you could have beaten gold, but that's not what iTulip is about.

Not re-entering the stock market March 09 seems like a less serious mistake when viewed in this context. (More accurately, he said there would be a rally, leaving it open for readers to participate, but incorrectly forecasted that it would last for under a year).

I think where EJ went wrong is not only in underestimating the effect of govt stimulus on the market, but more importantly, he missed the observation that US markets tend to always rally for at least 2 years after the end of a 20%+ decline bear market (even more so after 40% declines). That's how the stockmarkets tend to go. I view this as a strong reason to re-enter the market last year, and a reason to stay in the market for another year or so, with caution increasing as time goes by.

However, I appreciate how EJ laid out his reasons for this belief:
1. The market never became cheap
2. In Japan, there was a significant correction after about 1 year
3. There's no sustainable recovery in the real economy. The market will head down again if stimulus is removed.
4. There are serious potential problems like inflation, the china bubble and sovereign default that could cause a sharp sell-off
These factors mean that it's reasonable to predict a renewed bear market sooner than ever before after the end of the last one (also, the sample size on these severe bear markets is pretty low, so it's difficult to know how good a guide history is in this case). Staying aware of these issues is going to help us avoid another 30% shave in our stock holdings.

thx for the summary. this is also my experience here... since 1999. the itulip 15%/85% gold & gov't bonds held since then have crushed stocks buy&hold. net of transaction fees/taxes, i wonder how many 'brilliant traders' beat this.

looks to me as if this article on the end of the first bounce & the next crash was posted 5 days after the end of the bounce.

[Ben]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

The best 10-year record I can find for a mutual fund in the UK is 300% (Philip Gibb's Financials Fund and First State's Asia Pacific Fund) - from a list of "alpha" managers on trustnet.com

Gold made 400% in dollars (more like 500% in sterling).

It seems likely that not a single UK mutual fund manager beat gold since 2001. And gold was probably less volatile.

I can imagine if you joined iTulip recently and
1. Missed the rally
2. Have only seen a few percent on gold
You might be not be happy. But calling gold in 2001 and consistently supporting the trade is an impressive record.

And as I say, "wait and see" in the safest assets one can find seems like a respectable position when nothing is historically cheap and there are so many big risks.

[c1ue]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

These factors mean that it's reasonable to predict a renewed bear market sooner than ever before after the end of the last one (also, the sample size on these severe bear markets is pretty low, so it's difficult to know how good a guide history is in this case). Staying aware of these issues is going to help us avoid another 30% shave in our stock holdings.

This is a key point.

Avoiding the initial 40% drop means not having to add on a 66% gain over and beyond the risk free rate to compensate.

All those who complain about iTulip not helping them participate in the last year's 'pump', would be well advised to consider how to avoid the upcoming 'dump'.

[metalman]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

This is a key point.

Avoiding the initial 40% drop means not having to add on a 66% gain over and beyond the risk free rate to compensate.

All those who complain about iTulip not helping them participate in the last year's 'pump', would be well advised to consider how to avoid the upcoming 'dump'.

isn't that the point of this 'first bounce' article? q1 2009 the s&p was off 47%. to make it back the markets need to rise 94%. so far the S&P is only up 74%. we're still > 20% ahead. if the market re-crashes, we're even better off.

doesn't count for me... got out in mar 2000 at the original itulip 'gtfo' call... ahead > 50% in real terms, never mind the 'buy treas bonds' in 2000 and 'buy gold' in 2001 calls... icing on the cake. that said... now what?

[thriftyandboringinohio]

Re: The Next Crash - Part I: How the First Bounce of the Debt Deflation Bear Market ends - Eric Jans

... that said... now what?

Ay, there's the rub