Tuesday, 27 September 2011

Be Prepared...

Independent trader, Alesio Ratsani caused quite a stir last night with this interview. In his view, there's going to be a crash, and everyone should get prepared. Well, I hope he was short when he said it, because the market's up 2% off the open the day after this interview.

His rather juvenile "Goldman Sachs rule the world" comment is typical of traders who are in awe of that company. Goldmans doesn't even rule the markets, they've just made a couple of decent calls recently (and more than a few bad ones). In saying this, and the deliberately provocative "I dream of a recession", Mr Ratsani has pandered to the fear of every lefty on the planet. I am sure he had fun. I certainly enjoyed the look of disgusted incredulity on the BBC Bird's face.

So disturbing did Prodicus find this, he e-mailed me. My good friend, NorthBriton45 also fell into the trap, concluding.

"...it confirmed like nothing else why the notion of a free market is in reality anything but and would strip power away from so many completely innocent people."
The depths of confusion that comment reveals! Mr Ratsani and people like him don't control the markets. Nor do they strip power away from innocent people. Quite the opposite, in fact. There's no moral component to the market going up, or the market going down, and everyone has the opportunity to profit both ways

If you're convinced mr Ratsani is right, ring me and ask to buy the Deutshe bank Short FTSE100 ETF or 'XUKS' for short. I can have you short the market in 5 minutes. If you're extra sure mr. Ratsani is right, try a geared short ETF*. That's before you start writing options, spread-betting, or trading CFDs all of which you can do just by picking up the phone. Condemning the trader for making money on the short side, is like blaming the surfer for the wave. Markets don't cause recessions, whatever traders dream of at night. They respond to the likelihood of one.

I used to work on a trading desk. I've seen people like Mr Ratsani, extremely pleased with themselves as they ride the trend. As their overconfidence in their own genius becomes pathological as their winning streak lengthens, they take bigger positions. I once saw an independent trader lose a years' income in 20 minutes. He then went on to lose his trading capital. And his house. It took an hour, before he started destroying things around him and was escorted off the floor. We never saw him again.

The markets have been stuck in a bear market since the peak in 2000 at which time the share-price divided by the earnings per share (the PE ratio, a key measure of whether the market is cheap or expensive) was 42. That is each share was worth 42 times the profit to which it was entitled. That figure is now 9 times. The last time the market was that cheap was in 1979/80, at the foot of a 20-year bull market. In the short-term, I don't know what is going to happen. But if your view is years, the market is cheap, and paying a decent yield NOW. When the bond bubble and gold bubbles burst (they will, some time) there will be a wall of money flooding into shares.

Mr Ratsani may well be right. There may well be one final capitulatory crash but each and every time austerity has been attempted as a response to recession, it's worked. To my mind the Plan to allow a 50% haircut on Greek bonds while gearing up the stability fund and buying Italian and Spanish debt with it, looks credible. And in any case; bankrupt governments? Meh. They're not necessarily bad for business, indeed their retreat from activity will encourage growth.

I have not seen everyone so universally bearish, which means we're near the point of maximum fear. Which means we're near the bottom. Like mr. Ratsani, I'm prepared for the crash: I'm waiting to buy.

*N.B. Do your own research, this does not constitute investment advice, yada yada...

Here's the Daily Mash on the subject.
Update 1: It appears mr Ratsani may indeed be a spoof: is he one of the Yes men?
Update 2: It appears Mr Ratsani is NOT one of the Yes Men. Forbes have spoken to him.


Hedgehog said...

Well said. From this guys website, it looks like he is a selling trading advice.
I just despair at what the likes of Richard Murphy will make of this kind of moron. I dare say he will use it to smear every trader, which a bit like saying that because a mugger was black, all blacks are muggers....

BigDai said...

Suggestions he might be a hoaxer


nominedeus said...

excellent breakdown there VBD, I like it so much I am blogrolling you so I and my readers have some educated views on such subjects readilly to hand, thanks!

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