Thoughts On The Big Short And 2016 - Mike Swanson (12/31/2015)
Last night I went and saw the movie the Big Short, which is based on the fantastic book by Michael Lewis. That book is a must read for anyone involved in the financial markets and if you have never read it before you can get it on Amazon by going here.
I think the movie is going to be too complicated for the average person to enjoy even though it may be the best depiction of trading ever done before in a movie.
More on that in a moment.
There weren't even ten people in the theater when I saw it.
The thing is right now almost everyone is bullish on the stock market and wants to believe that it is going to go up forever so the last thing the masses want to think about right now is what happened in 2008.
They don't want to fill their brain up with nightmares, but dreams of future big gains even though almost everyone with a brokerage account has lost money this year, because more stocks have gone down this year than up.
The internals of the market had been terrible and only got worse as the year went on.
And it is just a few stocks in the S&P 500 that have made the averages look good.
And even Apple is doing poorly now.
One of the underlying messages of the Big Short Movie is that nothing has really changed since 2008 when it comes to Wall Street and Washington.
The big banks are still in control of DC.
And so are the defense contractors and national security state that pushs for endless winless wars.
Obama did not reform anything.
Here is a good video clip of the director of the movie talking about it. If you skip to the 7:27 mark in the video he gets to talking about the movie.
Now what I think the movie does that is neat is give a real depiction of what trading the markets and being a contrarian at key market turning points is really like.
The stock market is not push button millions.
You see how the people in the movie take positions that everyone tells them is wrong and attack them.
You also see how it takes time for them to make money and that creates a period of stress and tension for them - in which many people mock them and want them to lose money and get ruined.
You see that the people on Wall Street do zero real work and it is all smoke and mirrors.
And you realize that it takes real work to make real money in the markets, but most people have no interest in doing that.
So today's bubble bulls do only one thing and that is buy and believe and find reasons to confirm their beliefs as they bury their head in the sand.
The only other movie I've seen that displayed a real depiction of what trading really is like is a documentary about Paul Tudor Jones and the 1987 crash.
It comes and goes on Youtube.
Someone will put it up and then it will vanish.
So you got to do a search on Youtube to find it.
Here is a good clip of it (that probably will stop working in a few days).
Of course a lot of people hate Jones now, because he warned earlier this year that the stock market was a dangerous bubble that was going to wreck people.
He did this during this TED Talk:
The thing is we actually have another big debt crisis growing under our noses.
This one has nothing to do with subprime or mortgages, but instead is in the corporate bond market.
And the stock market topped out in July and has spent the whole year forming a giant top.
Once it goes through the lows of this month next year it will begin a giant tumble.
But no one cares.
But the funny thing is when you know what is happening then you do care even if bubble bulls make it hard to care.
I found an interview done of Michael Bury, who is one of the main characters in The Big Short.
The person asked him how did it feel knowing that everything was going to crash.
He said this:
I felt I was watching a plane crash. I actually had that dream again and again. I knew what was happening, but there was nothing I, or anyone else, could do to stop it. The last day of 2007, I couldn’t come home. I was in the office till late at night, I couldn’t calm down. I wrote my wife an email and just said, "I can’t come home; it’s just too upsetting what’s happening, and I didn’t want to come home to my kids like this." As for punishment of those responsible, borrowers were punished for their overindulgences — they lost homes and lives. Let’s not forget that. But the executives at the lenders simply got rich.
In the summer of 2000 I knew we were in a bear market and it made me angry at the time, because I thought that our leaders, especially Alan Greenspan, had created a crazy bubble that was going to wreck the country.
I shorted individual stocks and did well.
A lot of people lost money in the stock market, but overall things did not turn out as bad as I thought they would.
The economy did not get ruined despite what was a crazy crash in the Nasdaq.
In 2007 in September I understood that the Fed was going to lower rates to zero in response to a crash in housing prices, because I got a hold of an internal Federal Reserve report that said this is what they were planning on doing.
The implications of that were clear.
It meant the stock market once again was going to go down the toilet and this time the economy would too.
I sent it to my free email list, but very few people on it adapted to this coming reality.
In fact many just got angry at me for warning them, because they were pure bubble bulls.
So once again I felt angry about what was going to happen to the country.
But this time I also felt a sense of growing disbelief at how stupid the bankers and CEO's on Wall Street were to put their companies in this situation.
In 2000 it was just a tech bubble of baloney stocks.
In 2008 it was the "greatest" companies in America that simply got themselves into a bad situation thanks to their own short sighted stupidity.
And in 2008 the crash hurt people who had nothing to do with the stock market or any investment in at all.
I know dozens of people who lost their jobs and some of them still do not have one.
And there is no sense of outrage among the masses over the banks or the real leadership void in our country.
And no Jeb Bush or Rubion are not going to fill it.
And forget about Hillary who is owned by banks.
So it's all a mess.
Now we have seen the stock market internals deteriorate and the market form a big top.
I think it's going to go into a big bear market next year.
But I am not going to get angry about it this time.
See the causes of it are nothing new.
So there is nothing new to get angry about.
In 2009 we had a chance to reform and change things after the 2008 crisis and with the election of a new President.
But he did nothing and people demanded nothing - so that opportunity was blown and now it is too late.
And once the stock market started to go back up in 2009 by 2010 and 2011 the masses of people in the market were simply happy to have another bull market and no longer cared what was going on. If it took QE money printing and growing debts and another bubble that would cause a bigger wreck down the road they could care less as long as they could be promised endless stock gains.
And today they still believe in those promises.
But now in the coming weeks if the stock market breaks its lows of this month and this year and goes into a big drop then yes a lot of bubble bulls who won't make changes will lose a lot of money, but I think that the stock market decline next year will be more like the 2000-2003 bear market in the sense that I do not think it will have a huge impact on the real economy and those not in the stock market.
It would take a few years for that to happen and hopefully changes can be made before things get to that point.
So right now instead of getting angry about what might come I'm going to simply focus on trying to take advantage of things myself and helping those who want to do so too.
So I am just going to forget about the bubble bull and spend my efforts on people who want to buy things that can go up as a result of a market mess and who want to bet against the market and the worst stocks to position themselves for potential big profits when they drop.
On Sunday I'm going to put out something new to help you do these things if you are interested.
Meanwhile Amazon is running a sale on my books if you want to grab them and get ready for 2016:
And enjoy a good history book by grabbing my book on the rise of the great American empire titled:
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