Where Are They Now – Ten Years Later?
It seems that as you get older time really does fly and it also seems impossible that it has been ten years since Bear Sterns blew up. That was really the start of the subprime mortgage melt down. Bear Sterns was so leveraged that when the “wealth effect” finally unglued the American consumer, they could not cover their unhedged positions in the subprime mortgage market and the company went under. It was quite shocking and sad to see the destruction that was starting to create the melt down.
Later, like the God Father said, the market took care of ‘all family business’. This time it wasn’t Barzini, Tattaglia, Cuneo or Moe Green, but rather Lehman Brothers, Merrill Lynch, AIG, Countrywide Mortgage and Wachovia just to name the big ones. The effects of the subprime market were felt not only in the U.S., but eventually around the globe. Two of the most famous characters that the financial world watched were “Dr. Doom” a little-known NYU professor named Nouriel Roubini, and an analyst for Oppenheimer & Company named Meredith Whitney. What has happened to them since the meltdown?
Let’s start with Dr. Doom. He is still in high demand today and wrote a well-received book titled Crisis Economics. He had predicted the subprime collapse and the meltdown as early as 2006 and when it unfolded he became a celebrity financial soothsayer. He was on every financial program and his fame continues to this day. He claims to have over 450,000 twitter followers and is the second most followed economist in the world. His star was dimmed slightly when he missed the recovery in equities and the recession he predicted that would hit by 2014, but he still maintains that he will be right and will let the world know when the next disaster is approaching.
Meredith Whitney has followed a different path than Dr. Doom. She was a media darling that was on every talk show in the world of finance and she basked in the glory. Always a little arrogant, eventually that wore thin. Unfortunately, those accolades turned to schadenfreude following a 2010 interview on 60 Minutes in which she predicted that the next disaster would be in the municipal bond market. Although there have some big defaults namely Detroit and Puerto Rico the calamity that she predicted never unfolded. She left Oppenheimer in 2009 to start her own fund but it busted out in 2013. She took another chance and started a new fund in 2015 but that proved to be short lived also ending in less than a year. With her life shattered, she join Arch Capital Group in 2015 and maintains a position there as a senior Vice President. Quite a comedown from the Halcyon days.
Who knows who the next Dr. Doom and Meredith Whitney will be? Who knows when the next economic meltdown will happen? I wish I did, but I do know one thing for sure. There will be new celebrity economists and there will another financial disaster!
Ask Mr. Seifert
I am constantly asked questions about trading and how to exploit certain market factors to insure success. Each week I will answer one of those questions with a short paragraph which will cover the trading subject.
Why is the VIX declining as the market is still volatile?
The VIX represents what traders think of future risk. Even though the market is still volatile the VIX continues to fall because traders are anticipating that the worst of the volatility is in and that we will return to a less volatile market. The reason the VIX exploded in the first week of February is that traders that have been short volatility for the past few years got caught when the market turned. They scrambled to protect their profits or if they had just recently got short to try to cut their losses. The resulting trade created the classic” V” formation (blow off) when everyone tries to get out at the same time. Traders don’t care about price when they are getting a tap on the shoulder from the clearing house and they must cover their position or the clearing house will cover for them. They become price insensitive and will pay any offer if it stops the pain. Eventually once the market is satisfied it returns to the mean. Do yourself a favor and never sell naked options. I can guarantee you the Fed will not be there to bail you out!
The Wise Guy Report: The View From The Electronic Floor
Each week I talk about how the Wise Guys (floor traders) find the soft spots in the market and take advantage of price dislocation. Let’s look at last’s week price action from the electronic pits in three major commodity markets: Gold (GC), Crude Oil (CL) and Long-Term Interest Rates (ZB). On the equity side, I cover MSS which is the Mister Seifert Sez Composite Index. This is a proprietary index that I created which measures the dollar flow of the four major indexes (S&P 500, Nasdaq 100, Russell 2000 and the Dow Jones Industrials) on an unweighted basis.
Crude Oil makes four-year highs (Blow off)
The big news in the market this week wasn’t the volatility in the U.S. equities market which saw a 2% gain in the S&P 500 and another drop of volatility but the course that Crude Oil has been taking. It has rallied almost 69% since the lows of last June and is threating to break out to higher levels. The reentrance of U.S. Frackers into the market has has had little effect on price. It seems like all the big players are keeping enough Crude off the market to force the price higher. I have seen this movie before and it generally ends with a price spike (Blow off) followed by a rapid decline. U.S. Frackers that have been struggling the past few years are stepping up production as more rigs go up each day. The Crude oil futures contract itself is telling us that this is a ‘Blow Off Top’. The market is in extreme backwardation, which means that the April 2019 contract is trading $10 less than the current price. It is possible that the April 2019 contract could rally to meet this current price, but the odds favor the current price to be $10 less a year from now. This market is historically boom and bust and I would be leery of getting into the fray at these price levels until we see if this is a Blow Off Top or if a breakout above these levels will start a continuation of the year-old bull market. If nothing else, it should be an exciting time in the energy markets.
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Mr. Seifert