Tuesday, January 6, 2009

Great Depression 2.0: Acceptance Is Settling In

I'm afraid of GD 2.0 for more than a year. I wrote about it in multiple entries of my blog:

Moral Hazard, Fairness And Other Bullshit
Depression: Great Or Not So Great
Great Depression v2.0: Missing Piece Of The Puzzle
Great Depression v2.0: Reason For Optimism
GD 2.0: Jim, We Are There
Great Depression v2.0: Road Ahead

and others. Most writers and bloggers didn't see depression and deflation coming, were afraid of inflation and even hyperinflation. Many continue to do the same even now. Come on, people! Wake up!

We need to move through usual phases to acceptance, as mentioned in the last article in the list. Acceptance is what can focus decision makers in businesses and governments. And I mean multiple governments, because we have huge international depression.

Acceptance is coming. Jim Cramer almost mentioned that hated term, Great Depression. Now he lost hope in US government and his only hope is China. Good luck with communists, Jim! But you are close to acceptance at last, good. Acceptance coming in some articles now. Today we have two on Seeking Alpha site:

This Great Depression Is Just Getting Started

and

Deflation: The 800-Lb. Gorilla in the Room.

But probably the most important is the Paul Krugman's blog entry:

The second Great Depression has arrived …

Yes, Krugman is writing about Ukraine and Latvia. From my sources, situation in Russia isn't much better. Anyway, acceptance of the fact (and the fact that depression is international) is coming.

And I am happy! That's what we need. We need acceptance first, nothing will work without it. We can get real bull market real soon!

Let's wait for NY Times article "Great Depression II is here". When we see it, buy, buy, buy. Doesn't even matter what, buy any decent companies. If not sure, just buy index funds, index options or index ETFs, like Spyders (SPY) or Diamonds (DIA). And foreign stocks, funds and ETFs. I'm planning on buying when this happens, going "all in" and even buying on margin. That would be real once in a lifetime opportunity. Like it was in the fall of 1932.

But, I should caution. We are not there yet. I hope we get there fast, sometime this year. Before that, it's trader's market. And we can get new bottoms, and these bottoms might be much lower than what we had on November 20.

Full disclosure: at the time of publication author did not have any positions in SPY or DIA. Positions can change any time.

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6 comments:

Mark said...

Alex,

I work in finance in New York, and very much enjoy the common-sense thoughts of your blog. However, this time I think you're being a bit too "flip". To say that one should buy stocks in a huge way the day that the New York Times declares that we're going through a depression is just silly. What if they declare that in the second year of a five-year depression? What if the New York Times is early (for once), and it takes another two years before a depression is "declared" by the Wall Street Journal or Time Magazine? "Investing in irony"-- is way too imprecise to use as a timing strategy.

Alex Filonov said...

Well, I might be wrong. NY Times for me is just an indication that depression is commonly accepted. They might be early, but it's highly unlikely. Thing is, big press feels "responsible", they don't want to "cause panic". They will report big scary event only when it's obvious to everybody.
As for depression going on several years after that, it doesn't matter. Common acceptance will be near bottom. Bottom during Great Depression happened in fall of 1932, when it was way far from the end. And even those who bought 20-30% higher than 1932 bottom made huge money in couple years span.

Again, I might be wrong. Investing is not an exact science, it involves people.

Mark said...

Here you go, Alex. There were New York Times articles about the "current" depression as early as October, 1930. If you want to draw down your account another 80% or so from when that happens this time, be my guest!

http://query.nytimes.com/search/query?frow=0&n=10&srcht=s&daterange=period&query=depression&srchst=p&submit.x=26&submit.y=7&submit=sub&hdlquery=depression&bylquery=&mon1=10&day1=18&year1=1929&mon2=12&day2=31&year2=1931

Alex Filonov said...

Mark,

If you narrow search a little bit, to use "great depression" search through headlines, the first article mentioning this term in the headline was printed on Jan 1, 1932:

http://query.nytimes.com/search/query?frow=0&n=10&srcht=s&daterange=period&query=great+depression&srchst=p&submit.x=18&submit.y=8&submit=sub&hdlquery="great+depression"&bylquery=&mon1=10&day1=18&year1=1929&mon2=12&day2=31&year2=1933

What I see before that was quite like we have now, with countless articles proclaiming that the worst is over and bright future lies straight ahead. Not all of them, true, not even a majority, but still a lot. True, there were couple of articles with "great depression" term in the headlines before, but they were describing some small (on the grand scale) events.

Dow on Jan 2, 1932: 74.62
Dow on Jun 26, 1933: 100.92

Of course, Dow on July 5, 1932 hit the bottom: 45.29, i.e. 40+% down from Jan 2, but you'd made money anyway. And if you bought down on scale, you'd made huge money.

And of course, it's just me. I can stomach 40% drop, did it many times.

Mark said...

Alex,

What about Japan? I can't read Japanese (or Russian, for that matter), but when do you think they first started talking about the depression over there? 1993, when the Nikkei was still 20,000? 1997, when it was 15,000? (Of course, you know where it is today, 15 and 11 years later.)

Did they call it "equal to the 1930s depression"? I don't know-- probably not. All I'm saying is that "irony" is not an investment thesis. When you put your money down on that massive, market-wide (index) long position, you should have some fundamental reasons as to why, six months from then, the economy's going to start taking off again. In this case, that would mean you'd need a reason why housing prices were getting ready to increase in a sustained way.

Alex Filonov said...

Mark,

You are hitting where it hurts the most. Yes, Japan. I think situation there is even worse than Great Depression was. GD lasted, at most, 13 years. Japan is still deep in problems and we are going to celebrate, no, mourn 20th anniversary this year. I can't read Japanese either, so I don't know when the extent of the problem was recognized there, but it definitely was by 1998. Since then, there were a lot of articles with analysis, advices, counteradvices, several governments changed in the country and nothing. I have only one explanation: rigidity of the country's economy, but does it really explain anything?

What can I say, there is no such thing as a safe investing, and contrarian (or, as you say, irony) investment is not safe either.