The U.S. equity markets have been hitting all-time highs despite an ongoing war on Iran and relentlessly-increasing prices for gasoline, diesel, and other oil-derivative products like fertilizers. The rise seems to be driven almost entirely by huge increases in the share prices of AI-related companies (producers of the technology and of the materials necessary for the "build-out" of the process) - justified in the minds of investors by the potential for enormous gains in productivity and profits at some time in the future. The financing of these investments and the issuing of new shares to finance growth has sucked money out of other investments. These developments are alluded to in a recent statement by the CEO if Sun Microsystems, reproduced here in a post from Facebook several months ago:
For old-timers like me, the numbers look crazy. I'm old enough to remember the Black Monday stock market crash of 1987, when the DJIA fell over 20% in one day. I was an investor back then, and I've told people I "slept like a baby" through it (i.e. "woke up every hour and cried").
This ongoing and totally unjustified war by the U.S. and Israel on Iran is having widespread rippling effects through the world economy; the U.S. has been relatively spared but is unlikely to escape unscathed. Full disclosure: I established bearing options positions on the S&P index yesterday. Further disclosure: I tend to be a "perma-bear" predicting market falls that typically don't occur.
ReplyDelete"The market can remain irrational longer than you can remain solvent," usually attributed to Keynes, but Quote Investigator says no.
I used to treat stock trading like a visit to the casino but I won't touch options.
ReplyDeleteOptions seem to have acquired an inaccurate reputation as high-risk investments. It's quite the opposite. Buying or selling a listed stock option is a way to adjust risk in a portfolio. If the person buying the option is taking on risk, the person they buy it from is lowering their risk. It's a net-zero process. There are extremely conservative ways to use options.
DeleteOptions was my first "big" play. I worked for Chase Manhattan (now JPMorgan Chase). It was merging with Chemical, and I and my dad bought some stock. Then, one night in church, I had an epiphany! If we took the paltry amount (probably no more than a few hundred dollars) we had in stocks and put them in options.... We made, I think, around $1500. In time, I made a lot more...and I lost a lot more too. Not because of options, but because of my the gambler's mixing up of hope and fear.
DeleteInstead of fearing that something would keep going lower, I hoped it would change directions. And while I was better at letting my winner's run (instead of fearing it would turn around), it could serve to make me think I was right, therefore any "temporary" turn around would surely go back in "my" direction...and I'd give back a big piece (sometimes more) of what I had gained.
It's an elusive (but lucrative) goal to guess right three times in a row with options. I mostly use them as hedges. When the share prices are high but I'm worried about Trump's next move, I get some downside protection with puts and let the winning positions ride. It's only a cushion, of course, but I can sleep better at night.
DeleteCodex
ReplyDeleteIt's a bubble. Economists and the tech industry agree and warn. Does anyone need a decent return in a hundred years?
Quantum computing is 50 years away from doing anything interesting.
Bitcoin surprised me though. 10 bucks in 2010...
To say that that war is causing a hike in fuel prices is true. To say it is "unjustified" is a subjective statement that is arguable, at best. Iran is the invisible hand behind much of today's terrorism.
ReplyDeleteIf you haven't read the "Market Wizards" books for "Reminiscences of a Stock Operator," you are missing a treat! These books informed my understanding of markets (though they didn't necessarily do a while lot for my trading performance) in a massive way.
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