[Construct]

This man is described as an "independent market trader" in the attached article. His twitter profile ( http://twitter.com/#!/alessiorastani ) describes him as a "Keynote speaker" and a "Mentor and dedicated to helping others succeed". That doesn't exactly inspire much confidence. In fact, it is pretty obvious that he has set out to make a name for himself through this controversy.

Furthermore, he has obviously bet heavily on a near-term market crash. He's now financially and emotionally invested in a market crash, so of course he will be confident that it's going to happen. And if his doomsday video circulates the internet and makes a dent, however tiny, in investor sentiment then he has also effectively pushed the market (in a very tiny way) toward his goal.

Take a look at one of his recent tweets: "I've been waiting for this stock market crash for 3 years. #finance #economy"

The world economy is in trouble, no doubt, but let's remain reasonable and rational here. Spend enough time around financial types, and you can always find a doomsayer like this man in any sort of economy.

[leverage]

This guy is an independent trader because no one would hire him. He's misguided in his understanding of the markets. Goldman Sachs is an investment bank. When he says "anyone can make money from a crash", he's right: any INDEPENDENT investor/fund. Such as a hedge fund or himself, an "independent trader". These people are referred to as the "buy side". However, Goldman Sachs, as well as all the other banks he probably thinks "rules the world" is on the sell-side. The sell-side provides "prime" brokerage services to the buy-side clients -- that is they connect buyers and sellers via the exchanges. In fact, with the upcoming Volker rule, no investment banks will be allowed to engage in proprietary trading (trading for profit with the firms money), which is what the buy-side does.

Investment banks might actually lose money in recessions because they might take illiquid, toxic assets onto their books to service demand (point and case: the mortgage crisis). And securities is only a part of the investment bank business model. Advisory services, largely driven by M&A and IPO volume, provide a decent chunk of profits for banks. Capital markets dry up during recessions, which will completely stifle M&A and IPO activity and therefore revenue on that side of the bank.

This guy is full of shit. When asked what to invest in when the market goes down, his best advice is bonds and "hedging strategies". Bonds do indeed rise in value during bear markets, however hedging has almost nothing to do with profit or loss. Hedging is risk management: covering your ass in case of an unexpected move. For example, if I expect a downward market turn, as per his advice, I might buy up treasuries. But, to "hedge" the possibility that the market moves UPWARDS instead, I might buy an index tracking the Dow, which will increase in value as the market moves up. In this case, hedging is actually DECREASING my profits in the case of a downward movement in the markets. There are much more intuitive ways to play a downward market.

[joe_the_user]

Yes, the guy is full of shit.

The basic thing is that while there are ways to play down-markets, down-markets and up-markets are not mirror image and are not simply "different ways to make money".

An up-market inherently creates - maybe-not-money - but the appearance of money, the availability of money, "liquidity". An healthy up-market inspires healthy production and makes the liquidity it generates really correspond to people having more wealth on average. An unhealthy up-market naturally involves mis-allocated resources and its liquidity thus becomes illusory and so it is followed by a down-market. A down-market eats liquidity and decreases production meaning the decreased-money people have really corresponds the people also having less stuff, on average. So given the downer that is a down market, profiting become harder on average. Some do great but the average person should assume that the law of averages to applies to them...

[dotBen]

There are much more intuitive ways to play a downward market

go on...

[espeed]

Look up "Dr. Michael Burry" (http://en.wikipedia.org/wiki/Michael_Burry) -- he's famous for having done it by foreseeing the housing crisis.

Michael Burry Profiled: Bloomberg Risk Takers http://www.bloomberg.com/video/72756316/

His talk at Vanderbilt University http://www.youtube.com/watch?v=fx2ClTpnAAs

[leverage]

For any interested in Burry's story, pick up Michael Lewis's The Big Short. Great (if somewhat miscontrued) tale of the housing crisis, ripe with corrupt financiers and the "smartest men in the room".

Burry's lightbulb concerning the crumbling housing market was a product of a staggering amount of research on mortgages, contra to the research (mostly by rating agencies) already published. No average Joe is going to foresee a bubble about to explode.

I was thinking something more conventional. For example, contrary to what many may believe, history actually IS a good predictor of future. As an investor, I am not only limited to investing in individual companies -- I can also bet on entire markets/sectors (for example, Burry bet against the housing market). Also recall that the markets are cyclical (that is, recessions follow booms and vice versa).

With that in mind, I could, for instance, have a sector-based model hinging upon the business cycle. Certain sectors, historically, have tended to outperform during different segments of the cycle, and with well-timed bets I can always make money just by recognizing what state of the business cycle we are in.

For example, currently we are in a (if somewhat shaky) "recovery" phase. During recovery, financials and tech companies tend to outperform. I might use ETFs (IXG and IXN) to go long on these markets. I might even enhance my bet and short Consumer Staples, which are expected to underperform during recovery.

[hogu]

shorting stock/futures, buying short and doubleshort etfs, buying put options

[joe_the_user]

Indeed....

However, any kind of shorting strategy involves not just an expectation that the market will go down some time in the future but instead requires that you say exactly when.

Especially, if the stock that you are short begins rises, you may be forced to buy back the stock you've sold - the traditional "short squeeze". http://wiki.fool.com/Short_squeeze

Basically, playing to a down market is inherently harder than playing to an up market. It can be done but it is harder. Just another way the video is full-of-shit as many folks have mentioned.

[silverbax88]

This is an extremely valid point. If you look at the stories that are posted daily on Yahoo! Finance, nearly all of them are market predictions by people with a vested interest in their predictions (beyond simply trying to be correct).

I think this is still lost on most consumers; most people think stock analysts are the same as economists, and that's completely wrong. A good economist will tell you that they can't predict the stock market, but they can tell you what the economy will do. That's enough to let you know that the direction of the economy and the stock market are not directly linked.

[dxbydt]

>> A good economist ...can tell you what the economy will do.

I was sipping a venti mocha when I read this and I laughed so hard there's mocha all over my keyboard. There are people here, actual paid economists, who are doubling up in laughter at your assertion.

[grammaton]

"Mainstream economists are masters of the ad hoc explanation for whatever happened yesterday." - John Michael Greer

[smallblacksun]

The First Law of Economists: For every economist, there exists an equal and opposite economist.

The Second Law of Economists: They're both wrong.

[ph0rque]

So the trick is to find a direction orthogonal to all economists, and thus find out what the economy really is going to do? Not a bad idea.

I guess the hardest part about it is not letting an economist read about this direction, and claim it as his own...

[rasur]

Sounds like we need an Economist in the Complex plane..

Hmm, an Imaginary Economist.. Sounds somehow apt?

[silverbax88]

That's funny, because I have some actual paid economists who work for me and they are scarily accurate. But I could throttle back and say 'they know what the economy will LIKELY do'.

I still think you are transposing economists and analysts.

[daeken]

No, an economist knows what the economy should do, not what it will do or is likely to do.

[mattm]

Or can explain what has happened in the past.

[silverbax88]

Sure, I can accept that.

[steve8918]

Just out of curiosity, did any of your economists predict the US recession back in 2007, or the US housing crisis? From what I recall, almost none did.

[silverbax88]

Actually, many did. Economists were telling us that the economy was shaky all through the 00's. Economists told us in 2006 that the market problems from Wall Street would spread into housing.

Again, there is a difference between stock analysts and economists. Economists are looking at numbers, trends and history more like a computer scientist. Economists are even often specialized into various regions of the country.

A stock analyst is going off of timing and trends more than data. If you've ever traded stocks heavily, you learn quickly that traders throw away yesterday...'that money's gone'. Having worked to make companies profitable, it's unsettling to realize that the stock market is full of people who know how stocks work but have no idea how business works.

I think I've posted this before but in one past company we moved millions of dollars of product around before we did our annual inventory just so our numbers would match what Wall Street expected. We actually needed much more on hand than the stock market wanted just to do business, but they wouldn't have any idea about that.

[steve8918]

I've always found that economists for the most part have been extremely unreliable in forecasting things like recessions. (Also stock analysts are useless too) Case in point, an article from 2007, pre-recession:

http://www.nytimes.com/2007/03/04/business/yourmoney/04view....

[lionhearted]

I'm enjoying this discussion heavily, particularly your contributions to it which are great. Just a minor (but important) nitpick -

> A stock analyst is going off of timing and trends more than data.

Not necessarily. You can broadly divide analysis into two camps - "technical analysis" [1] which is what you're describing, and "fundamental analysis" [2] which is looking more at intrinsic value, numbers, assets, things like that.

Warren Buffett, for instance, does plenty of stock analysis and he's not a technical trader at all. He repeatedly says he doesn't try to time the market. [3]

The first book I read on trading - Technical Analysis of the Financial Markets [4] - was from a technical analysis perspective, and I lost money trying to implement it.

Then I read about value investing and started trying to apply those principles - only buying fundamentally sound stocks trading at a favorable price earnings ratio, either in fundamentally defensible businesses or with lots of solid assets on their books, and buying with a big margin of safety.

I haven't had a losing trade since then, though in fairness my sample size is small and I don't sell unless the price of a stock I bought gets over what I consider reasonable. I'm currently holding Microsoft and HP which are down, but both I think are way undervalued (Microsoft is extremely stable, has some upside in the way of a strong research division, and could potentially translate a hit like the Kinect into alternate input devices. HP is being treated as toxic despite owning some nice high margin businesses that most people don't think about when they think of HP, as well as a huge patent portfolio and some good assets... yeah, their management sucks lately, but who cares if a company is trading below its liquidation value? anyways, do your own research, check the financials, etc, etc)

Anyways. Not all traders are technical traders. Fundamental analysis is also analysis, and probably easier to implement to be consistently successful. The top book on that is "The Intelligent Investor" [5] by Ben Graham, which Warren Buffets calls the best book on finance ever written (I agree).

[1] http://en.wikipedia.org/wiki/Technical_analysis

[2] http://en.wikipedia.org/wiki/Fundamental_analysis

[3] “If you’re an investor, you’re looking on what the asset is going to do, if you’re a speculator, you’re commonly focusing on what the price of the object is going to do, and that’s not our game.” (1997 Berkshire Hathaway Annual Meeting)

[4] Generally considered one of the best intro books to technical analysis. http://www.amazon.com/gp/product/0735200661/ref=as_li_ss_tl?...

[5] http://www.amazon.com/gp/product/0060555661/ref=as_li_ss_tl?...

[Duff]

It didn't take an economist or soothsayer to call these things. A war economy with a massive run-up in property prices that were clearly irrational is a formula for disaster.

Hell, the financial crisis had a early warning alarm. Bear Sterns imploded in the Spring... was the subsequent collapse of Lehman and the crisis really a big surprise?

[trevelyan]

You might want to follow Brad DeLong's blog. Krugman also talked about housing bubbles (http://delong.typepad.com/sdj/2006/01/paul_krugman_on.html) back in 2006. He wrote a column that said so explicitly, arguing that "part of the rise in housing values since 2000 [has been] justified given the fall in interest rates, but at this point the overall market value of housing has lost touch with economic reality. And there's a nasty correction ahead."

My memory of the blogosphere is that people knew housing was overvalued and a lot of people were taking equity out of their homes by remortgaging them at high valuations. But I do not remember discussion of how much fraud there was in originating and repackaging housing loans, and no-one was talking about how these were getting securitized and distributed.

[skylan_q]

When looking for a reason why the economy crashed, I dug through a lot of rubbish until I found Peter Schiff.

http://www.youtube.com/watch?v=Z0YTY5TWtmU

[mg74]

The Economist in 2005: http://www.economist.com/node/4079027

[SkyMarshal]

No, plenty did. From the more famous Nouriel Roubini, Nassim Taleb, and Peter Schiff, to lesser known money managers like Mike Shedlock and Karl Denninger, there were many. Just because the market-cheerleading media hardly covered them doesn't mean no one saw the housing crisis coming.

[steve8918]

I said economists, not money managers. Of the group you mentioned, only Roubini and Taleb are economists. Taleb did not predict a recession. He made money off the financial crash of 2008, which is entirely different.

Of course there will be people who say there is a crash. That's what makes a market. But economists don't predict market crashes, they predict recessions. And very few economists predicted a recession, which is what I said.

[trustfundbaby]

Yes ... go google 'Nouriel Roubini' and 'Charlie Rose Show'

[wnight]

I don't recall economists saying it (I didn't listen) but every trivial housing metric said we'd been overpriced since the 90s. I saw people buy condos they couldn't pay for with rent in twenty-five years, if ever - if all went well. The rule is that 10-12 years gross rent is the highest reasonable purchase price.

Any economist who didn't call the bubble, and painful end of it, wasn't trying.

It will get worse. Our economy is debt all the way down.

[irrumator]

I don't know what else to expect from a thread with an editorialized title taken from Reddit and ZeroHedge of all places.

[cynicalkane]

As economics, as a field, becomes more powerful, the economy becomes more stable. I think this is probably a positive indicator for the value of economics.

This recession is severe, but it has nothing on the recessions of the past. Let's not throw out this knowledge; it was won by the accumulated experience of economic hardship unimaginable to modern Americans.

I have a hard time believing there are any "actual paid economists... doubling up in laughter" in your vicinity. Something about the attitude of your post.

[byrneseyeview]

People entering the workforce forty years ago could reasonably guess when they'd retire and what they'd be doing at the time. I know very few people who think they'll have the same job five years from now. It seems very likely that the argument that the economy is getting more stable is false.

Here's why: underlying predictability probably increases volatily. People love to lever up when they're certain; "Private Equity" as an asset class refers to both VC deals and leveraged buyouts because in both cases, they fine-tune their leverage to get the same (high) volatility. Increased certainty makes bankers more willing to lend, and speculative buyers are always willing to borrow.

In my experience, speculative borrowers and the marginal banker overestimate decreases in volatility. Thus, a more superficially predictable economy will lever up fast enough to more than counteract that (sort of like the theory that airbags increase traffic fatalities because drivers overestimate how safe they are and thus take extra risks).

For economic volatility to actually dampen, you'd need economists to come up with better predictions that sound really stupid, so bankers and speculators would disregard them.

[scarmig]

This is inaccurate, or misleading at best. "It has nothing on the recessions of the past" is only true if you're looking at the pre-WW2 period. Compared to recessions since then, this is the most severe and long-lasting. There has been no recession since the Great Depression where unemployment has stayed as high as it is for so long.

Economists spoke of a Great Moderation that had occurred thanks to their ideological theorizing, but that is just an unfunny punchline to a joke now.

[cynicalkane]

It's plainly obvious that I'm thinking of the entire economic history of the United States.

If you think this recession is bad, look at recessions before modern economic theory came about. That's what I'm trying to get at.

It makes absolutely no sense to throw out sound, proven macroeconomic theory because of a regulatory experiment gone wrong. I'd say it was that macroeconomic knowledge that prevented that mess from being a total disaster. And now people want to throw that economic knowledge out in favor of ridiculous shit like the gold standard, or MORE deregulation, or on the left twisted ineffective versions of laborism, or whatever. Bleh.

[dxbydt]

>As economics, as a field, becomes more powerful, the economy becomes more stable.

umm..Nope. I can give you a subtle, nuanced argument about why that's plain false. However, I will defer to Dr. Derman here - http://blogs.reuters.com/emanuelderman/2011/09/23/the-perils...

[roshanr]

Economists do not necessarily have a great track record with predicting the future state of the economy. From a study by Denrel and Fang: 'Economists who had a better record at calling extreme events had a worse record in general. “The analyst with the largest number as well as the highest proportion of accurate and extreme forecasts,” they wrote, “had, by far, the worst forecasting record.' [1]

Also, this Freakonomics podcast talks about the folly of prediction in general - http://freakonomicsradio.com/hour-long-special-the-folly-of-...

[1] http://www.boston.com/bostonglobe/ideas/articles/2011/01/09/...

[jonnathanson]

"As economics, as a field, becomes more powerful, the economy becomes more stable."

This is magical and, frankly, dangerous thinking.

In fact, this is eerily similar to the hubristic naivete peddled by pundits just before the subprime mortgage crash.

[arethuza]

"As economics, as a field, becomes more powerful, the economy becomes more stable"

So you are asserting that economics as a field causes stability in the economy?

[16s]

Yes, they are like weathermen. The best they can do is make an educated guess.

[hvs]

Actually, only a dishonest economist would say, "they can tell you what the economy will do." NO ONE knows what the economy will do. People make educated guesses, some better than others, but for every economist that tells you one thing, you can find another that will tell you the exact opposite.

[marcamillion]

I think a more accurate statement is that a 'good' economist can tell you what the economy MIGHT do, based on what it has done in similar circumstances in the past.

Economics is the study, and explanation, of the way things work - from a historical perspective.

[patrickgzill]

I think you need to do a Yahoo! search on Lawrence Yun, economist for the National Association of Realtors.

Then you will understand why I find your comment quite humorous....

[bediger]

Wouldn't someone employed by realtors be one of those vested interest parties, who can't make a rational prediction, because they'd loose their job if they did?

[jprobert]

I agree with the fact that most people who make these comments have a bias. While these bias must be disclosed they are often not done so until the end of the video or article that they've written. It should be required that a person disclose any potential biases at the beginning of their argument so that the audience has a clear understanding of what motivates them.

[markbnine]

It's strange seeing a doomer post here. When HN starts colliding with ZH, things must be glum. Is this bizarro day? Typically I come here for the start-up-optimism, technology-will-save-the-world, how-i-made-twelve-million-dollars-from-a-weekend-project posts. . .

[T-zex]

You can look into this as a 3 yeal old dream comming true, a guy will become rich and he also gives an advice how to make money :)

[fleitz]

This is exactly a "how-i-made-twelve-million-dollars-from-a-weekend-project". Winter is coming, buy shorts. Too bad Groupon didn't IPO shorting that stock would be gold in this market.

[zackattack]

I use ZH to keep my pulse on the market and HN to learn tech market fundamentals.

[chernevik]

Goldman Sachs haven't Canute-like powers, they simply have better tide tables. So anyone claiming they "rule the world" should be viewed skeptically.

That said, we've had several decades of large and various constituencies "financially and emotionally invested" in the government absorption of risk (via Freddie / Fannie, Greenspan Put & Too Big Too Fail), and in the excess stimulation of demand via deficit spending.

The linkages between fiscal policy preferences and political ideologies, of all stripes, really shouldn't be that hard to figure out. I mean, it really shouldn't be that hard to think about what, say, a Paul Krugman believes to be ideal long-term policy, and what that might imply for his forecasted outcomes of various short-term initiatives. Or for your standard issue right-wing think tank circa fall 2003.

By all means, let's inspect this yo-yo's motives and their influence on his opinions. But if we're symmetric about it, we'll overturn a lot of rocks far larger than needed to hide this wannabe.

[asto]

Big banks do rule the world! Not for the reasons he implied though. Take a look at Goldman's alumni list for example. So many people in power positions. And there's all the money big businesses put into politics. It's not charity! You don't think the ability to lobby effectively counts for anything?

http://en.wikipedia.org/wiki/Goldman_Sachs#Alumni

[fleitz]

That's the great part about the market, you don't need to have these debates, you think he's wrong? Take a position against him and in a few months time you'll have dollars instead of upvotes if you're right.

[xianshou]

The other wonderful thing about the market is that it doesn't care whether you have favorable odds if you only take one bet. Lucidity in a debate is much more likely to produce upvotes than 55% odds on a single speculation about the market is to produce dollars.

(As Keynes said, "Markets can remain irrational a lot longer than you or I can remain solvent.")

[rgraham]

I heard recently that market naysayers had 'predicted twenty of the last two recessions'. I think that about sums up this activity whether or not the predictions are made by interested (read: untrustworthy) men.

[kayhi]

Looks like more investigating has been done: http://goo.gl/Yp447 with the result not looking good along the same lines that you mentioned.

[themichael]

http://www.bbc.co.uk/pressoffice/pressreleases/stories/2011/...