Crisis, disasters, projections, and fiction

Every crisis in financial market is immediately followed by commentators rushing to paint the extreme scenarios. Much of it is based on projection techniques commonly familiar to propaganda artists. Lot of what gets passed on is fiction. When Amaranth collapsed, there were extreme projections of gloom and doom. Looking back it was non event.
Now the Bear Stearns trouble are similarly being spun around to project various extreme scenarios. If you look at history of financial markets over several years, you will find markets take care of such events. Many times there is a rush to project an isolated firms problem as a large scale systemic problem.
Such crisis and panics are very good speculative opportunities. Such events often lead to extreme moves in market. Invariably after such panic there is an excellent profit making opportunity as stocks rebound vigorously once such panic passes. If market goes down 10% or more, you should be very excited,it indicates long opportunity might be around the corner.
At times like these perspective is very important. If you internalize some of the fiction being passed around and get shit scared, you will not be ready for the long side trade which setup during such time.
If you are a trader your mind should constantly be thinking about what is the trade in this mess. How quick are you at spotting an opportunity determines your profit making ability.

Can you think like this macro trader featured in Inside the House of Money : Top Hedge Fund Traders on Profiting in the Global Markets by Steven Dronby.




Jim Leitner

Are disaster and tragedy always a buying opportunity?
"Yeah, look at Russia or Botswana or Turkey. For example, when Turkey had a massive earthquake in 1999, we bought shares of glass manufacturers because we knew everybody was going to have to replace their windows. It was a no brainer. Turkish stocks were going down across the board but we bought all the shares of glass manufacturers we could."