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re: There are some major issues lurking in the US financial markets
Posted on 1/4/19 at 9:07 am to Doc Fenton
Posted on 1/4/19 at 9:07 am to Doc Fenton
quote:
This is the most speculative part of the analysis, of course, and I don't have a high confidence that any of these short-term projections are very meaningful, but I follow them just enough to alter/delay my execution timing for shorting the market by a few weeks.
Trump and Powell are making it tough to navigate short exposure right now in equities. My only idea is to have longer dated options so you have time on your side.
But just IMO, we all know the fundamentals in the bond market aren't pretty. Technically, most charts are atrocious, I mean check out Google about to fall off a cliff at 13x earnings. The only uncertain factor right now is how Powell will handle rates and balance sheet run off. Those are powerful tools that could rip your face off if your balls deep in puts.
Doc, have you thought about what happens if this trade dispute gets resolved? I believe that it would change nothing in the underlying weakness in China. What are your thoughts on that?
Posted on 1/4/19 at 9:41 am to wutangfinancial
quote:
My only idea is to have longer dated options so you have time on your side.
Or just wait a week or so. But yeah, I hear you.
quote:
The only uncertain factor right now is how Powell will handle rates and balance sheet run off. Those are powerful tools that could rip your face off if your balls deep in puts.
Once the bear rout gets started, I think the Fed will mostly be helpless to stop it.
quote:
Doc, have you thought about what happens if this trade dispute gets resolved? I believe that it would change nothing in the underlying weakness in China. What are your thoughts on that?
I agree. I have already factored in an assumption that the trade dispute will get resolved, with cosmetic changes to show to a political base, but with the status quo ante mostly unchanged. I mean, we may see more substantive changes than what we saw with NAFTA, but I think the Trump Administration wants to get a deal done even more than China does. We'll see some promises from China to buy more U.S. imports, to open up various sectors to foreign investment and competition, and to clamp down on IP violations.
But there is a lot of damage that's already been done, and the Chinese economy is about to hit that wall similar to what Japan hit in 1990 (although it will have some notable differences, given that China's GDP per capita is still middle-range).
And even that's not really the point when it comes to U.S. equities. The coming falloff in Chinese demand will hit the FAANG stocks hard and trigger huge bear rips in the stock market, but the asset bubble is about a lot more than just China.
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