# Can we be serious for a second?



## KaeJS (Sep 28, 2010)

Maybe it's just me...

But all I see is irrational exuberance. If you don't know what that is, then Google is your friend and it is a term coined by Alan Greenspan in 1996.

VIX all time lows, everyday new SPX highs, Trump is tweeting about nuclear buttons, BitCoin, jokecoin, whatevercoin, yourmomscoin, eastercoin and iknowwhatyoudidlastsummercoin are just popping off...

Minimum wage flying up in Canada. Jobs are being lost. Benefits are being cut. Interest rates are increasing. Mortgage rules tightening.

Everything - every single asset - is at an extreme valuation.

Pardon my french (and to the mods, I sincerely apologize beforehand), but has everyone lost their mind? What in the **** is happening in the world right now?

Mortgage rates are around 3% and the SPX returned 1.3% in the first 2 days of 2018 (oh, and that's after going up 25%+ in 2017). Do y'all think profits increased by 25% in a year? LOL. Give me a break.

And don't even get me started on the Cryptocurrency... 

You've got people selling their houses and buying Bitcoin. Why? Explain to me, somebody, please. Useless digital currency is trading at $15k USD and you can buy a can of tuna that will sustain your life for $0.99...

What am I not understanding about every single asset class right now? Everyday, everything - green. 

WHO is buying Bitcoin?
WHO is buying SPX at 2700 when it was 1200 just 6 years ago?
WHO is not worried about a housing bubble?
WHO is not concerned about the minimum wage increases?

Guys -

I have no problem admitting when I am wrong. But I think the entire valuation of most asset classes right now is extremely high.

I can't imagine someone in their right mind would buy the index right now thinking that upside is higher than downside potential.

I'm not usually a bear. I'm usually bullish. But I am honestly so bearish right now that I am paralyzed. I keep writing spreads every single week and look at the futures in amazement. The entire thing bewilders me. It seems like nobody gives a **** anymore. Complacency is at all time highs. You can't even BTFD anymore because there are no FD's to B.

I don't want someone to pat my shoulder and say "you're right". I'm not looking for an ego boost. I want someone to give me a solid, coherent, fact driven explanation as to why I could be wrong. Because honestly? I just don't see how I can be.

Go look at a chart for the following:

Bitcoin/Ethereum/Ripple/Neo/ICX

Canadian Real Estate

SP500

Then come back to me and post in here without being a troll and type "Yeah, I'd buy that. Nah, I'm not scared."


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## Just a Guy (Mar 27, 2012)

I don't think you're wrong at all. I've been thinking that for years. 

The only things I buy are things that are heavily discounted...mostly a few one shot rental properties where a correction has already been priced in. 

I haven't bought much stock since the last crash in 2007/8. 

I avoid fad investments like crypto currencies.

But then, I've lived through similar things in the past and remember the outcomes. If you are a little paranoid, and plan for the worst, and you're right everything is expected. If you're wrong, and things don't go to pot, you benefit more.


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## james4beach (Nov 15, 2012)

I'm with you, KaeJS. I think we're entering a new phase in the consequences of historically unprecedented monetary stimulus from global central banks. In the 2008 crisis, they lowered cash rates to the lowest ever and fired up quantitative easing. Never before in history has there been market stimulus of this magnitude.

Several countries now have negative cash and t-bill yields. The Federal Reserve balance sheet swelled to nearly $5 trillion and central banks around the world coordinated to keep the money flowing. US, Canada, Europe have now had interest rate at "emergency level" lows ... sub 2% ... for nearly 10 years now! And there are _extra_ forms of stimulus never tried before. The Bank of Japan owns 71% of all Japanese ETFs to the point the head of the exchange says it's distorting the stock market, while the Swiss central bank owns $90 billion in US stocks.

I think what we're seeing now are the consequences, and they're starting to become dangerous:

* American stocks are overvalued, with a CAPE of 33 (that's like 1998)
* Institutions and retail are both betting on low volatility (XIV has 5 year performance of 50% _annual_ return)
* Bitcoin and crypto currencies
* Marijuana stock insanity

Eventually, this kind of runaway, fearless speculation psychology (or actual inflation) will force the central banks to tighten up. My guess is that, at that point they will burst the stock market bubble and the VIX will spike.



KaeJS said:


> Useless digital currency is trading at $15k USD and you can buy a can of tuna that will sustain your life for $0.99...


I love that line, KaeJS. That's the heart of it isn't it. That can of tuna presents spectacularly great value (as does a can of garbanzo beans).


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## james4beach (Nov 15, 2012)

On the plus side, it has been a few years since we got a good old fashioned stock market bubble. It's kind of a blessing to get a front row seat to one of these shows!


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## m3s (Apr 3, 2010)

The "crashes" I've known were in 2000 and 2008. I feel like we're due for another any time now

Certainly with crypto when taxi drivers and colleagues are talking about how they're getting rich you know it's a bubble..

Personally I'd welcome a fire sale. And who the hell is KaeJS?


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## KaeJS (Sep 28, 2010)

M3s,

I'm a little disappointed you don't remember me. I was very active a few years ago. I remember lots about you.

IIRC, You live in Germany, like cars and you frequently race? I think you have or had a BMW a couple years back, anyway...

I guess I didn't leave a good impression LOL!


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## james4beach (Nov 15, 2012)

GMO's Grantham has put out a nice letter that's getting coverage from Bloomberg tonight. You can get the PDF here.

Along the lines of what we've discussed here, he mentions high market valuations and things like bitcoin as indicators that we're in a broad bubble. He says this market is one of the highest-priced in history.

Grantham thinks we're entering the end phase over the next 6 months to 2 years. He sees the potential for very high returns ahead, as is typical in the final stage of a bubble.


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## Oldroe (Sep 18, 2009)

I'm surprised nobody mentioned Tesala over priced no root to profitability.

The rest I agree with just idling along waiting my time. Come on #7.

I don't see anything eminent.


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## Gumball (Dec 22, 2011)

couldn't agree with you more KaeJS on everything you mentioned, I keep waiting for the shoe to drop yet all I see are higher highs in the markets almost daily... we shall see what happens..

I stumbled on a very well written article on seeking alpha that seems to echo what you are saying, one of the best written pieces I have written in a while I would say....

https://seekingalpha.com/article/41...nsequences-federal-tax-reform-monetary-policy


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## Rusty O'Toole (Feb 1, 2012)

There are no markets anymore, everything is manipulated faked up and artificially inflated. All you have to do is read the financial news about how the government, Fed, Bank of Canada etc are deliberately influencing things. Dig a little deeper and find out how the statistics the financial industry depends on are all cooked, faked up or misreported. Then you get into stock buybacks and other manipulations that make the markets look better than they are.

The only solution I can see is to abandon fundamentals and take a technical approach. As long as the markets are going up I want to be long, when they turn down I want to get short. This may seem a giddy minded way to operate but I don't see much other choice.

If fundamentals meant anything you could have gone short California real estate in 1980 and Vancouver real estate in 1990 and made a fortune. Needless to say, anyone who did this would have been killed. Good thing you can't short real estate. Too bad about all the people who have been short the stock market the last few years.


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## Eder (Feb 16, 2011)

I don't think your line of reasoning is wrong or original. We all have been expecting a correction of some type the last year or so. The problem is that history shows anticipating a market crash is less profitable than buying & holding great businesses that pay & increase dividends. I don't want to sell my market exposure only to watch it go up another 15%...imagine all the poor guys that dumped in 2008 and are still looking to get back in. They will never catch up. But should we correct 20% I'm happy owning banks,utilities etc rather than weed stocks haha.

For those that have only invested since 2009 ...better buy a lot of Pepto!!


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## Plugging Along (Jan 3, 2011)

KaeJS said:


> M3s,
> 
> I'm a little disappointed you don't remember me. I was very active a few years ago. I remember lots about you.
> 
> ...


KAE. I am very pleased to see you post. I loved reading your posts as a young guy. I wondered what has happened to you, career wise, house wise, financially. Will you provide an update? I found your determination amazing, and wondered if you have become one of these financial gurus under 30. I also wondered if you found a girl friend who liked chocolate milk as much as you (that was youright).


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## Plugging Along (Jan 3, 2011)

Back to your thread, i do think it’s crazy with the crypto currencies and cannibis stock. It’s just speculation as usual. No different than everything else, if everyone or the main stream is talking about it, then it’s too late.

For the stock market, I have alwa6s been a bu6 hold, and am lousy at timing things, so will continue with that strategy, as I believe better than leaving my money in the bank.


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## OnlyMyOpinion (Sep 1, 2013)

KaeJS, you mention a number of concerns, all of which are valid. I look at them on their own however:
Bittcoin is a speculative call which has no real impact on you or I, the monetary system, the economy or market, etc. 
Pot stocks are a new, burgeoning but unproven 'sector' which some people are piling into (and some of us have already exited), of impact only to those at that table.
RE prices appear irrational if you are looking at greater Vancouver or Toronto. Otherwise not so much.
Minimum wage increases will be absorbed with some job/benefit loss and some increased consumer prices but I don't see them torpedoing the larger economy.

As to the larger market, particularly the US, yes it seems like it has taken no pause in its upward trajectory for the last 9 years. Shorting it could have been bad for your (financial) health. So is 2018 the year of correction? I don't pretend to know. I do see demographics putting boomers and their offspring into the market together now, low interest rates have pushed people into equities, and etf's makie it 'easier' for more people to become market investors.

2018 is no different than any other year - make sure we have an financial plan that defines our investing criteria, ensures we can stay the course in the event of a major market correction, ensures we are not overly exposed to margin, bitcoin or pot, have the ability to cover monthly costs in the event of a loss of income.
In deccumulation mode, I have a large FI component to pay the bills for years out and gift out a portion of our estate, longer term holdings are diversified across the markets, and non-reg dividend equities ('20 pack') could drop 50% this year without losing sleep.
Younger family are similarly invested but with a bit less FI and lesser tilt to dividends. They are still growing their accounts so will continue to periodially make diversified market investments knowing that a 50% drop in 2018 will be a 'blip' ten or twenty years from now.

P.S. I think most of us recognize you KaeJS - don't feel forgotten


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## CalgaryPotato (Mar 7, 2015)

The market is at a high, but not a bubble type high. Sure it's increased a lot when you compare it to the bottom of the last recession, but if you look at the market over time, it doesn't seem to be unusual. (I would expect a drop, but nothing catastrophic). 

Same with real estate in most places (except Toronto & Vancouver). The prices across most of Canada and America are fairly reasonable when you look at prices over time, again slightly high, but not in a bubble.

Sure the minimum wage increase will have some effects, but bottom line is that not that many people actually were at those wages anyway.

Bitcoin, I agree with you, the current valuation seems to be mostly on speculation.


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## pwm (Jan 19, 2012)

I'm with Eder on this one. I've been investing since 1979, retired 12 years now, and I am 100% large cap equities. I stay fully invested. No bonds, no GICs although I do keep ~$100k in an HISA at EQ Bank just in case of any emergency. I don't spend time worrying about market gyrations. I've been investing long enough to have lived through Black Monday (1987), the Asian Contagion (1997), the Tech Bubble (1999), the Financial Crisis (2008-2009) and stayed the course throughout all that. I collect the dividends and enjoy the cash flow.


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## TomB19 (Sep 24, 2015)

We can see things changing, for sure. More jobs, less careers. We are exposed to the random news cycle. I have literally seen articles predicting $120 oil on the front page of oil-price.com right next to a $20 oil article that was posted a couple of hours earlier.

Then there is the Breitbart news phenomenon. We now have systematic negative news, designed to hurt specific companies, as well as indoctrinate specific political philosophies.

My wife and i haven't abandoned fundamentals. We embrace them, more than ever.

Good quality value stocks still exist. Like always, you have to beat the bushes to find them. It's a bit tougher in this market but doable.

The r-e bubble that has been discussed my whole lifetime is a phenomenon that is more social than factual, although it has both components.

Have you noticed the people predicting doom in the real estate market are pretty much always old guys, like me? Young people don't seem as worried.

It seems like there comes a day when a guy wakes up to take a whiz and while he is waiting on his pumpkin sized prostate restricted flow to finish, he thinks about the house he bought for $42k back in 86 that is now worth $425k and the cable bill that is now $160/mo and his world falls apart. Older men really do get less sleep and there is a despair that comes with sleep deprivation and life change fatigue. It's real.

When you consider the future, I suggest also considering the idea your emotional state may be clouding your objectivity.

I know bad things will happen in the future, as they always have, but life is nothing more than troubleshooting between orgasms.


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## KaeJS (Sep 28, 2010)

Plugging Along said:


> KAE. I am very pleased to see you post. I loved reading your posts as a young guy. I wondered what has happened to you, career wise, house wise, financially. Will you provide an update? I found your determination amazing, and wondered if you have become one of these financial gurus under 30. I also wondered if you found a girl friend who liked chocolate milk as much as you (that was youright).


PA,

Nice to see you are still around these parts, also! I'm not a financial guru under 30 by any means. But I'll give you an update:

Careerwise, I have been trading options full time for the last 2 years. I live solely off the markets. If I can keep this up for the rest of my life... I would have "retired" at age 25. Trying really hard to not have to go back and work for "the man".

I have a newer townhouse just outside the GTA about an hour or so from Toronto. I rent out part of it for some extra cash.

It was me that had a huge addiction and obsession with chocolate milk (God, that stuff is still amazing). Good memory! Unfortunately, I have given up chocolate milk and most foods in an effort to be a healthier individual. I am 6ft, and after ballooning to 209lbs back in 2014... I have stopped continuously spiking my insulin by sipping chocolate milk all day and ordering pizzas. My diet mainly consists of things like fish, lean means, broccoli, carrots, etc. I added a weight training program to my lifestyle as well and now weigh a more respectable 170lbs.

I do have a girlfriend - but she's not an avid chocolate milk fan, or even a big milk drinker at all. She's about being healthy and that's a good thing for me. It keeps me in check while passing the milk section at the grocery store so my temptations don't get the best of me!


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## KaeJS (Sep 28, 2010)

TomB19 said:


> Have you noticed the people predicting doom in the real estate market are pretty much always old guys, like me? Young people don't seem as worried.


Young people lack knowledge and experience. They are also more confident because they haven't felt what disaster is like.

That doesn't mean they shouldn't be worried. It means they are likely disconnected from the facts due to emotions (or lack of) emotions.


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## KaeJS (Sep 28, 2010)

I'd like to thank everyone for their posts so far.

It seems SPX is up another 0.5% today...


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## jargey3000 (Jan 25, 2011)

KaeJS said:


> I'd like to thank everyone for their posts so far.
> 
> It seems SPX is up another 0.5% today...


i think messrs. dow & jones maybe touched uncharted territory again too?
i dunno what to do.... each day i say i'm gonna take some profits now.... then i have a look & guess what - greed takes over & i convince myself to squeeze a few moe pennies outta this bubble before she bursts...
But - help me out here - didn't that old lady who heads (or headed up) the Fed or whatever, say sometime last year that "there will be no more stock market crashes in our lifetime" - or words to that effect???? I'm ok with that - as long as she's talking about MY lifetime ....and i'm pushin' 3 score & ten....


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## peterk (May 16, 2010)

Welcome back Mr. wants to live in a fancy cottage and drive a fancy car and not have to go to work by the time he's 30. :cool2:

So you live off options now? Quit your job?? Wild! Do you not only have a smallish portfolio to generate those profits on? And somehow make enough to support yourself. Sounds unreal, but I guess if it works...

Myself I'm getting sick of thinking that a certain macro factor means this or that. Central banks, government actions, demographics, debts, wars, oil, interest rates, easing, tightening, housing etc. What does it all mean or indicate anyways? in relation to the stock market? Impossible to figure out.. Obviously I've been dead wrong for 5 years straight in my assessment that we're "teetering on the edge", and have missed out on a lot of money with only my toes in the stock market instead of jumping in for a swim. You can have a darn good argument for one reason or another why something should happen, and it doesn't mean squat if your timing is off by a few years or something else more important overpowers what you previously thought was important. 

Anyways, I'm more bullish now than I have been before. Still hoarding a ton of cash but trying to invest more and save less.

I'm sure someone will point out that nervous retail investors becoming more bullish is a sign the bubble is about to burst... :stupid: but I don't care. C'est la vie.


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## james4beach (Nov 15, 2012)

I had some very bearish friends who ran into this exact same problem back around 2005. By then it was pretty clear to many people that we were in a serious real estate & finance bubble. Some of them exited stocks, others started shorting things. Unfortunately it was way too early and they got burned real bad.

The problem is timing. Realistically, you can't do it. If you avoid stocks now, when will you get back in? What do you think the odds are that you will successfully time (1) the peak in stocks, plus (2) the bottom in stocks? It's impossible. The same applies to bonds.

I've lived this whole story before. I turned bearish in 2006-2007, felt brilliant for it, got out of the stock market and shorted it a bit, watched it crash. Just about perfect timing on the way down. But then I was very slow getting back in, I ended up missing out on many gains, did not have a coherent strategy, etc.

A friend of mine had something a little different happen to him. He also got out of stocks, great timing, but then was so demoralized about the whole stock market that he has never invested again since. So there is also a psychological danger to "getting too cute" with trading the market.

This experience is what has led me to use a static asset allocation. Perhaps that means 60% stocks 40% bonds or 50/50 or something else. I've done lots of research into this over the last few years and am convinced that in the long term, a static asset allocation (whatever it is) will outperform attempts to trade in & out of markets like stocks and bonds.

To see evidence of this just look at the consistently great behaviour of well diversified 60/40 funds like Mawer Balanced or BMO Monthly Income. You can also run backtest simulations of portfolios and see how they do over market history. Try a 50/50 allocation for example.


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## james4beach (Nov 15, 2012)

I want to emphasize that psychological danger... if you get overly ambitious about trying to "trade" this stock market bubble, you might do something reckless like buy a whole bunch of SPY puts or some TVIX. And then if your timing is wrong and you're wiped out, the pain & suffering might cause you to never touch the stock market again.

Instead, decide on an asset allocation you can be comfortable with long term, and stick with it. Simulate the worst case scenarios to know what you're getting into, and there will be no surprises going forward.


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## andrewf (Mar 1, 2010)

james4beach said:


> _snip_
> * American stocks are overvalued, with a CAPE of 33 (that's like 1998)
> ** Institutions and retail are both betting on low volatility (XIV has 5 year performance of 50% annual return)*
> * Bitcoin and crypto currencies
> ...


On the topic of high XIV returns, the returns are only possible because people were overly pessimistic about volatility. The short volatility trade makes money when realized volatility is much lower than predicted volatility. VIX futures start out at high prices and converge down to the much-lower spot VIX, which is in turn driven by much lower realized volatility. If the short volatility trade was crowded, the short volatility fund returns would be more muted (at least on a risk-adjusted basis). I think it is still the case that more people are (foolishly) playing long volatility--essentially buying a lottery ticket.


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## m3s (Apr 3, 2010)

KaeJS said:


> I'm not a financial guru under 30 by any means. But I'll give you an update


Nice update!

My memory is pretty poor especially for internet usernames but I was joking. I was afraid to ask for the update because you seemed to leave in a bit of a slump. I have also wondered what you got up to

I don't intend to work for "the man" much longer myself. Have you checked out leanFIRE or FICAN on reddit?

It's certainly possible and there are many ways to pull it off


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## crgf1k (Aug 8, 2015)

james4beach said:


> On the plus side, it has been a few years since we got a good old fashioned stock market bubble. It's kind of a blessing to get a front row seat to one of these shows!


I don't feel so bad now that I'm a bit excited too.


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## james4beach (Nov 15, 2012)

crgf1k said:


> I don't feel so bad now that I'm a bit excited too.


Don't hold your breath though. These things take years to play out! This is the problem with trying to speculate on a market crash. Say the index is currently 1000 and at some point it's going to crash 30%. Maybe it rallies for another couple years and rises to 1440, and then crashes down to 1008.


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## crgf1k (Aug 8, 2015)

No, I don't care if it takes 10 years to hit bottom, I only care if it's the bottom or not. Here's another interesting article. It's long but good.

https://www.hussmanfunds.com/comment/mmc180101/


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## doctrine (Sep 30, 2011)

Energy stocks are pretty cheap. Even with oil moving up quite a bit. For everything else, you can try rebalancing into cash or high grade bonds. I've been finding myself going into higher quality and shorter term bonds myself.


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## new dog (Jun 21, 2016)

If we see a decent market correction because of the Fed backing out that may what is needed to really bring on the QE.

The stock market right now should probably correct to 10,000 but I can't see the Fed sitting still and letting this happen. What is most likely to happen is the Fed comes back with a massive QE and turns the tide of the market. The problem will be can they pull off the scam of dollar strength, what looks like low inflation and keeping gold and silver down in order to keep the table set. Lately countries have been slowly exiting using the dollar for trades like oil and such and this is also a problem.


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## OnlyMyOpinion (Sep 1, 2013)

Yes, some trigger and then market psychology will take over. A TSX to 10,000 is about -39%. I think -50% to -60% is possible. I don't see the gov't being able to do anything to halt a plunging market. They'll muddle about afterwards though and piss away our money. It will be ugly. Make sure you can pay your bills and keep some powder dry.


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## TomB19 (Sep 24, 2015)

Why would the government want to stop a plunging market?

If you want a government guaranteed investment that won't go down, we have that. Bonds.


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## new dog (Jun 21, 2016)

Some theorize that the reason the market barely corrects at all is because the Fed doesn't want what you just described happening OnlyMyOpinion. Could also be a possible derivatives unwinding and then banks going under is another reason markets must not go into free fall.

The Fed's first priority is keeping the bond market where it is. If long rates are allowed to find their own level it could destroy everything. The Fed is trying to nudge short rates higher trying to show that everything is good and there is nothing to be concerned about the economy or the Fed keeping inflation in check. The big problem is the Fed can't push rates up very far and risk an inverted yield curve.


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## james4beach (Nov 15, 2012)

Maybe I'm over-thinking this now, but I'm kinda concerned that so many of us sound bearish and cautious. Maybe that means we're in for 5 more years of strong stocks.


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## Eder (Feb 16, 2011)

I'm loving the fear... I think I agree with the possibility James pointed out.


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## cjm815 (May 6, 2016)

I've been lurking on this site for almost going on 2 years, listening and learning. Starting to work up some courage to give up some of my thoughts.

Dividend growth-oriented type of investor you might say, I'm inclined to keep investing 100% of my cash. If the market drops 50-40% I'm backing up the boat and loading up on margin/Heloc. Anyone else have this plan?


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## crgf1k (Aug 8, 2015)

cjm815 said:


> I've been lurking on this site for almost going on 2 years, listening and learning. Starting to work up some courage to give up some of my thoughts.
> 
> Dividend growth-oriented type of investor you might say, I'm inclined to keep investing 100% of my cash. If the market drops 50-40% I'm backing up the boat and loading up on margin/Heloc. Anyone else have this plan?


I'm very risk averse so at a 40% drop I'd be concerned that it could be followed by a lengthy bear market. If interest rates go up on your margin/HELOC (or your house value goes down) you could be left in a tight spot. I'd have to see a 75% drop to consider borrowing to buy stock.


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## james4beach (Nov 15, 2012)

cjm815 said:


> Dividend growth-oriented type of investor you might say, I'm inclined to keep investing 100% of my cash. If the market drops 50-40% I'm backing up the boat and loading up on margin/Heloc. Anyone else have this plan?


Brokers would likely reduce their margin lending during such a drop, so you might find it harder to acquire the margin loan. You might even start with a margin loan and then find the loan gets called in due to the broker reducing the max amount you can borrow. In periods of higher volatility, brokers don't lend as generously and they have the right to change their margin lending policies at any time.

If you're investing in individual stocks, the other danger is that your stocks don't recover, but instead crash to zero. The index won't crash to zero, but individual stocks certainly can.


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## 30seconds (Jan 11, 2014)

Ive been following this forum for over 5 years years now. TBH the pessimism back then kept me very cautious, out of real estate and I have held a 30-40% FI for all those years. I remember al the credit ceiling and thinking it would bring down the markets.. Sure enough it didn't.

I would have made much more investing it but I feel it was sound investing. Plus that is my "invest in my self/business/house/emergency fund". Started with Eseries, transitioned to ETFS, transitioned to a Canadian 5(8) pack with VTI.. Now I've let the weed stocks and Crypto take over making up 30% of my portfolio even though everyone here is so bearish on those sectors. Well I'm up 100-400% on weed stocks and over 150% in crypto. This all in a year. My VTI is doing very well at 85% over 5 years? Plus I am very comfortable with my Canadian Dividend payers. 

At 26 this is fits my risk balance. It is concerning how people are saying ONLY 10% gains on stocks.. I try to stay level headed. Cash is now going to be flowing into some businesses I am starting so that will reduce my cash positions. I have learned I'm not very good at swing trading since I never buy back in. Nor am I got at timing the markets so when I get cash I invest and keep my allocations some what in line. I also learned to make your own judgments and not listen to much to internet forums.

I will defiantly not load up on Margin if the market drops 50%. 

All that being said my utilities allocation is falling behind? More FTS.. I think so


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## cjm815 (May 6, 2016)

james4beach said:


> Brokers would likely reduce their margin lending during such a drop, so you might find it harder to acquire the margin loan. You might even start with a margin loan and then find the loan gets called in due to the broker reducing the max amount you can borrow. In periods of higher volatility, brokers don't lend as generously and they have the right to change their margin lending policies at any time.
> 
> If you're investing in individual stocks, the other danger is that your stocks don't recover, but instead crash to zero. The index won't crash to zero, but individual stocks certainly can.


Thanks for the info. I realize the specific risks I am taking on investing into individual equities. I am young and have a very long investing horizon, and like to think being a tradesperson with a government employment I should have a stable base.

As for the Heloc, In such an event of a huge decline, I own my house fully which allows me a fair bit of gunpowder in such a case. 

I'm curious about past such turndowns how much brokers such as IB contracted there borrowing amounts. Would you have any specific case or insight such as from 08/09?


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## james4beach (Nov 15, 2012)

cjm815 said:


> I'm curious about past such turndowns how much brokers such as IB contracted there borrowing amounts. Would you have any specific case or insight such as from 08/09?


I was trading with IB during 2007-2009 and recall that they did tighten up margin a bit. I think certain stocks lost their eligibility for reduced margin rates. For example normally IB will lend you 70% of the value of certain major, liquid TSX stocks and ETFs. Some of those stocks, with the increased volatility, were scaled down to 50% lending. If you were operating at the edge of allowable margin, this means you would have had to add more cash or liquidate some of your stocks.

Also, in my experience IB is a dangerous place to hold leveraged positions. They are known for having quick-acting and brutal margin policies, including automatically liquidating your positions (in whatever order they want) if you get a margin call. This is fine when you are actively monitoring your positions every day, but is a bad idea if you are holding long term positions on margin. Do some google searches and you will see that IB is known for aggressive enforcement of margin, and that's dangerous to you during market volatility.

That's the flip side of their ultra low margin interest rates. These days I am much happier taking margin loans from TDDI, though I barely use any margin.


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## james4beach (Nov 15, 2012)

30seconds said:


> Ive been following this forum for over 5 years years now. TBH the pessimism back then kept me very cautious, out of real estate and I have held a 30-40% FI for all those years.


40% fixed income and 60% stocks would have done great in the last 5 years! Take a simplistic benchmark: 40% XBB, 30% XIU, 30% ZSP. This would have returned a spectacular 10.1% _annual return_ over the last 5 years.

That's one hell of a return for a cautious investor.


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## new dog (Jun 21, 2016)

james4beach said:


> Maybe I'm over-thinking this now, but I'm kinda concerned that so many of us sound bearish and cautious. Maybe that means we're in for 5 more years of strong stocks.


I don't see this as a fear or greed issue at all but more of a management issue. We have been on this management side since 2009 and as I said they are working a fine line between a inflationary stock and everything else issue or turning it to dust. The third option is trying to continue the illusions and keeping us in check.

The bottom line is the free markets must not rule.


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## OnlyMyOpinion (Sep 1, 2013)

new dog said:


> ...The bottom line is the free markets must not rule.


Help me out here. I think we are talking about the stock markets?
If we look for example at the ups and downs of publically traded DOL, BEI, and WEED. 
I'm not understanding what you mean when you say _free markets must not rule_?


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## Pluto (Sep 12, 2013)

I think you are correct to be wary as we are inching toward the end. I say that not because of valuations, but because of virtual full employment. Full employment + inflation = interest increases which contributes to breaking the bull market. 

the over valuation is normal in bull markets as stocks trade on next years anticipated earnings. so in the present, using trailing p/e's, they always look over valued. so pricey stocks is not a reason to say we are done. 

But what is your strategy when the bear arrives? My strategy is to do nothing. Just ride it out. I don't buy stocks that can't survive a bear market.


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## Oldroe (Sep 18, 2009)

When toilet paper is on sale you buy buy buy.


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## new dog (Jun 21, 2016)

If the market is set free OnlyMyOpinion then we will have everything implode and interest rates rise dramatically. We would see failed bond auctions and of course big derivatives problems. 

The bond market is far more important then the stock market and if it goes the stock market will tank along with it. 

The US is also a credit driven economy and if credit is too expensive because rates rise to far then spending will slow dramatically. The Fed of course must keep this from happening by keeping rates low and this is a manipulation.

The stock market is more important for keeping people feeling like the economy is humming along and everything is fine out there. Gold and silver are kept down and under control so people can't see the inflationary effects of QE and keeping faith in the dollar.

One thing however if the Fed really wanted to it could send stocks skyrocketing in a inflationary spiral because it can print as much money as it wants. Every where in the world we have seen this when a country loses control to hyper-inflation and the Fed is doing its best to not let this happen. The Fed needs control of everything in order to keep the wheels on the markets.


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## Beaver101 (Nov 14, 2011)

Oldroe said:


> When toilet paper is on sale you buy buy buy.


 ... no, the priority is when KDs (Kraft's Dinners) are on sale, you buy buy buy first. Before the stocks!


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## KaeJS (Sep 28, 2010)

peterk said:


> Welcome back Mr. wants to live in a fancy cottage and drive a fancy car and not have to go to work by the time he's 30.
> 
> 
> 
> ...


Thank you for the warm welcome back!

Yes, my portfolio is about 75k. Not large by any standard. I make about 1% per week. So, I'm not living a crazy lavish lifestyle. But I think one of the things I couldn't realize when I was younger is how valuable time is. When I was younger, I would work 100 hours a week and not think twice. I used to take **** from co-workers, management, customers.... I can't handle that anymore. I rather make a little less money and have all the time in the world to do whatever I want. I'll probably live longer for it, too.


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## KaeJS (Sep 28, 2010)

m3s said:


> KaeJS said:
> 
> 
> > I'm not a financial guru under 30 by any means. But I'll give you an update
> ...


Ah, yes. I don't remember leaving in a bit of a slump now that you mention it. I actually had forgotten all about it. =)

I have not checked them out until now and I did subscribe to leanFIRE. Thanks for the recommendation!


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## KaeJS (Sep 28, 2010)

Pluto said:


> I think you are correct to be wary as we are inching toward the end. I say that not because of valuations, but because of virtual full employment. Full employment + inflation = interest increases which contributes to breaking the bull market.
> 
> the over valuation is normal in bull markets as stocks trade on next years anticipated earnings. so in the present, using trailing p/e's, they always look over valued. so pricey stocks is not a reason to say we are done.
> 
> But what is your strategy when the bear arrives? My strategy is to do nothing. Just ride it out. I don't buy stocks that can't survive a bear market.


Everything you said is true and I also agree. Good points.

Should there be a bear market, I would likely use a combination of calls and puts to ride some of the trend.

Likely, I'd have some "safe" dividend payers that I would be long and I would write ITM Calls on the way down.

I'd probably also purchase puts on overbought assets or assets that do poorly in a crash.


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## KaeJS (Sep 28, 2010)

Oldroe said:


> When toilet paper is on sale you buy buy buy.


Glad to see you're still around also, old chap!


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## peterk (May 16, 2010)

You still sound like a wild crazy guy KaeJS 



KaeJS said:


> Yes, my portfolio is about 75k. Not large by any standard. *I make about 1% per week.*


How?

You must be selling a ton of short duration contracts/week that are at-the-money and maxing what the broker will let you sell? Are they naked? or spreads at least? Isn't this all very, very, very risky? Do you have any plans for a regular career at all or is this it? Do you have a backup plan incase the portfolio explodes? Rent the rest of your rooms I suppose? You still shooting for a nice cottage up on the bay and sports car to drive around after trading hours?

Bravo for being brave and venturing out against the grain of what is considered normal... I couldn't do it... Sounds wild though. You're about age 28ish? I'll give you a shout when I'm back in Galt and maybe can grab a beer...or milk lol.


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## bumblebee (Jan 15, 2015)

no go away everything is fine


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## KaeJS (Sep 28, 2010)

peterk said:


> You still sound like a wild crazy guy KaeJS
> 
> 
> 
> ...


I use a lot of margin and write a lot of Bull Put Spreads. I always do weekly duration. Never more. I do these spreads on large companies that I see as value plays. Typically companies that are well known, have solid models and pay dividends. I usually keep to companies in the $50-100 range. I only play US equities. I never play within 2 weeks of earnings dates. I avoid all weeks with shitstorm possibilities (like presidential elections, or writing options on retail during a week with retail sales numbers, or even when competitors have earnings... Ex, I wouldn't write an option on NKE if UA had earnings that week.)

This past week, I wrote a ton of contracts on CVS. I was able to get a $0.26 net credit on a $72/$71 spread.

After leverage, I am able to write 23 contracts.

2300 x $0.26 = $598 USD

After commissions that becomes $565 USD.

Multiply that by the exchange or roughly 1.25...

$706.25 CAD.

Just under 1% return for the week.

Risky? No. How?
My max loss is $0.74 x 2300.
Most I can lose is $2160 CAD After commissions.

And that's assuming I don't sell calls against my position for extra protection and ACB reduction (which I would do, because who doesn't want to own CVS under $71.74?

Another good play this week was AIG. $59/57.5 spread was wonderful. Net credit of $0.18. Who wouldn't want to own AIG at $58.82?

I have over a 90% win rate.

The portfolio probably won't explode in it's entirety, but it will no doubt have some drawdown periods. I don't have any debt unless you count the mortgage, so I could probably survive quite a while with no income if I needed to. Plus, minimum wage is $14 now... LOL!

I do have a couple small businesses on the side that make me some passive income. Assuming they stayed the same, I could live off that alone. But it wouldn't be a great lifestyle and I'd probably not be going out very much or buying toys.

The cottage? Yes. That's the goal. But I've become increasingly annoyed with Canada and honestly... If someone gave me the chance to move to the US in the Midwest, I'd be gone in a heartbeat. Canada is just a little too socialist for me... I don't have a family and I don't need the healthcare. I'm 27 and healthy. I could sell my townhouse here for a 10,000 sq ft house in Indiana. Count me in. There are a lot of Canadian things I don't agree with and Kathleen Wynne is one of them =)

As for the sportscar... I have a 2014 Nissan 370Z as my summer car now. I love it. A Porsche would be nice, but the Z does me just fine.

If you're ever around Galt give me a shout. I'll take you for a drive. Before the beers, of course...


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## hboy54 (Sep 16, 2016)

You would think it would be easier to vote out Wynne rather than all of us having to move to Indiana to escape her, but you might be wrong in thinking this. We will know I about 6 months.

Hboy54


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## MrMatt (Dec 21, 2011)

peterk said:


> Welcome back Mr. wants to live in a fancy cottage and drive a fancy car and not have to go to work by the time he's 30. :cool2:
> 
> So you live off options now? Quit your job?? Wild! Do you not only have a smallish portfolio to generate those profits on? And somehow make enough to support yourself. Sounds unreal, but I guess if it works...
> 
> ...


To me it seems that the biggest risk is political risk.
Incompetent Politicians making horrible decisions to get votes are the biggest risk to the economy I see.
It's not just McGuinty/Wynne, Patrick Brown has decided that he has to stick with a lot of their plans to get elected.
When government mismanagement of the economy is considered an essential part of electibility, we have a problem.

For example the attacks on small business, ie the 20% hike to minimum wage in Ontario is a flat out disaster, I was talking to someone who thinks it is good.
I pointed out that healthy employers is important (I guess he never worked for a company that missed payroll and went bankrupt)

If your mortgage suddenly jumped up 20% you'd be furious, it's one of your largest expenses and due to something completely out of control it goes up, what would you do?

Quite simply this would be a disaster and a lot of people would simply fall behind on their mortgages and lose their homes. That's the type of thing that is happening to employers, and that the government is doing this, with enough support to be re-elected, it scares me.
It's like they actually don't understand the cost of their policies. Given that, I'm really leery to get involved in businesses susceptible to political risk.


To be fair, I am against high minimum wages, but even this hike should have been smaller, maybe 5%/yr for the next 7-10 years or so would at least be something employers can plan for.


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## redsgomarching (Mar 6, 2016)

i am ok with the increase in minimum wage - however, i do agree that it should have come in increments over time. this was a ploy for votes and the attacks on small businesses this past year (tax changes, increased costs) are extremely detrimental considering the changes and incredibly better looking business landscape down south. 

we will lose. that is plain and simple lol.


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## Karlhungus (Oct 4, 2013)

https://www.wsj.com/articles/as-dow-tops-25000-individual-investors-sit-it-out-1515099703


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## redsgomarching (Mar 6, 2016)

Karlhungus said:


> https://www.wsj.com/articles/as-dow-tops-25000-individual-investors-sit-it-out-1515099703


S&P 500, 25 year + timeframe. and voila. 

i understand that DJIA is what they are referring to but my post is in regards to US stock exposure.


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## m3s (Apr 3, 2010)

KaeJS said:


> The cottage? Yes. That's the goal. But I've become increasingly annoyed with Canada and honestly... If someone gave me the chance to move to the US in the Midwest, I'd be gone in a heartbeat. Canada is just a little too socialist for me... I don't have a family and I don't need the healthcare. I'm 27 and healthy. I could sell my townhouse here for a 10,000 sq ft house in Indiana. Count me in. There are a lot of Canadian things I don't agree with and Kathleen Wynne is one of them =)
> 
> As for the sportscar... I have a 2014 Nissan 370Z as my summer car now. I love it. A Porsche would be nice, but the Z does me just fine.


Have you considered becoming a digital nomad? I don't know what your side businesses are but you could write these options from the beach of any warm/low-cost-of-living country. You can easily negotiate amazing deals on 4-6 month airBnB, rent a scooter to get to the beach, spend the summer in your Canadian cottage with the Z. That way you maintain residential ties to Canada for healthcare etc

I need to learn options


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## KaeJS (Sep 28, 2010)

m3s said:


> KaeJS said:
> 
> 
> > The cottage? Yes. That's the goal. But I've become increasingly annoyed with Canada and honestly... If someone gave me the chance to move to the US in the Midwest, I'd be gone in a heartbeat. Canada is just a little too socialist for me... I don't have a family and I don't need the healthcare. I'm 27 and healthy. I could sell my townhouse here for a 10,000 sq ft house in Indiana. Count me in. There are a lot of Canadian things I don't agree with and Kathleen Wynne is one of them =)
> ...


I have considered that, but have yet to pull the trigger on anything. More research on my part is needed and I haven't invested much time into doing so. 

If you haven't learned options by now...

What were you doing for all those years, ms3? =)

You should learn them. They are the key to everything. You'll wonder why anyone even buys stock once you learn...


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## james4beach (Nov 15, 2012)

james4beach said:


> GMO's Grantham has put out a nice letter that's getting coverage from Bloomberg tonight. You can get the PDF here.


I recommend reading this analysis. I think he's on the mark and the more I think of it, the marijuana and bitcoin insanities look like indicators of stock mania. I know bitcoins don't involve the stock market but they are all seen as investments, and are interchangeable (among young people or newcomers to investing). They're in the same space, and fearlessness in bitcoins relates closely to fearlessness about stock/bond markets.

He also makes some interesting points about strong performance of well established large caps during past late stage bull markets. If he's right, that bodes well for the Five Pack and the TSX 60 large caps.

The economy is doing quite well, actually. Grantham makes the point that stock bubbles don't come out of nowhere, they are based on solid fundamentals, it's just that people extrapolate and then get carried away. The Canadian jobless rate hit a *40 year low* and the overall situation looks really good actually. So is the US situation.


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## KaeJS (Sep 28, 2010)

I am against wage increases.

It makes me furious.

Guess who it benefits?
Uhm... Nobody.

It's such a big farce. Everyone making minimum wage is "happy" about it. Until a few months from now when the prices of EVERYTHING that are a necessity have gone up.

As if Walmart and McDonald's will keep their prices the same after an almost 20% increase in wages lol.

And what does it do for everyone who makes more than minimum wage? Yeah... It decreases buying power. It reduces quality of life. It makes your salary thin.

That salary you worked so hard for? Went to school for? Kissed your arrogant manager's *** for?

It makes it all just a little less worth it =)


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## james4beach (Nov 15, 2012)

Kae the problem is that someone working a job at minimum wage can't afford to live on that salary alone. They can work all day and still not afford food, rent, and pay their kids' expenses. That is a serious problem and large segments of society work very hard and yet live in poverty.


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## MrMatt (Dec 21, 2011)

KaeJS said:


> I am against wage increases.
> 
> It makes me furious.
> 
> ...


No, it buys votes.
It hurts those at the low end of the wage scale, and small businesses, but look at the reaction. Lots of people think it's good, and they'll vote Liberal.
She'll say "I tried to give you more, but those greedy people took it away", she'll blame everyone for the fact that hours will get cut, and raises for others will be smaller.
If your employer has to give the guy making $12 a $2/hr raise, he's not going to have money for the guy making $14.

The sad part is that this policy hurts those making the least, and the businesses trying to do the best. Like Tim Hortons, those people HAD benefits. 
They could have simply cancelled benefits and given the pay raise, but that could have really hurt them, instead it really looks like they're trying to do the best they can.


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## KaeJS (Sep 28, 2010)

james4beach said:


> Kae the problem is that someone working a job at minimum wage can't afford to live on that salary alone. They can work all day and still not afford food, rent, and pay their kids' expenses. That is a serious problem and large segments of society work very hard and yet live in poverty.


Ah, and herein lies the socialism and my growing disdain for Canada.

Who's problem is it exactly that they can't afford their lifestyle? 

You're telling me that two people working 40 hours a week can't afford to live?

That's easily $3600 in net income. If you can't live on that - you're doing something wrong.

And of course... I know where this is going. You get into the whole "what about the single mothers" and all this..

Well.. I'm probably not the best person to talk to about it. But it definitely isn't the job of society to fix other people's situations. And nobody is stopping anybody from starting their own business.

We already give away $700/month to whoever wants welfare. Can you believe that? It's not even a loan!!

Why does our society allow this to happen? =)

And so the socialist wheel turns and turns... Soon we will end up like Britain. Our cops won't have guns, cameras will be everywhere, and you'll be arrested for speaking your mind.

Cough, George Orwell, Cough...


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## none (Jan 15, 2013)

KaeJS said:


> Ah, and herein lies the socialism and my growing disdain for Canada.
> 
> Who's problem is it exactly that they can't afford their lifestyle?
> ..


This is somewhat ironic as posts such as yours are a source for my growing distain for the uneducated. For those who think they are allowed an opinion about something they're obviously ignorant about. Here, read this: http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5


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## sags (May 15, 2010)

Some of the arguments against minimum wage, universal income and raising business taxes would resonate louder if they weren't contrasted by record level business profits.


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## sags (May 15, 2010)

The government shouldn't have to get involved in wealth distribution, but they are stuck with the job.


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## MrMatt (Dec 21, 2011)

none said:


> This is somewhat ironic as posts such as yours are a source for my growing distain for the uneducated. For those who think they are allowed an opinion about something they're obviously ignorant about. Here, read this: http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5


You're right and wrong.
The uninformed shouldn't be making decisions. 

Simply quoting a single study that shows what you want it to doesn't mean you're right. 
Other arguably better studies support the view that sufficiently high minimum wages are bad.
https://www.vox.com/policy-and-poli...46/study-high-minimum-wage-job-killer-seattle

So the studies are at worst mixed, I'll even give you that.

Logic and the consensus suggests that there is a breaking point at some value where the high minimum wage will result in job destruction.
In todays economy $100/hr is too high, 50 too high, 25, too high, 20?, 15? 10? not sure.

I have not seen a single paper, study or other data on what the minimum wage should be from an economic viability model.

The argument for a high minimum wage seems to be the living wage argument, and I agree with that argument fully. People should make a living wage.
In fact IMO that is the only real argument for a minimum wage.

Now stepping back the argument is that people need a minimum income to survive. 
There are only a few ways to get more money to more people.
1. Minimum wage, tell employers to give their staff more money, or shut down their business. As long as this doesn't hurt the employer too bad, it's a an easy way.
The concern is that too high will be too much for the employer to afford, and they'll have to cut something else.
2. Cut taxes, everything past $11500 gets taxed at 20%. If minimum wage is $14/hr ~$28k/yr. That person is paying tax on $16500 or about $3300 in income tax.
The concern is that a tax cut of $3000 would be too much for the government to afford and they'll have to cut something else.

Interesting that the government, with their billions can't seem to afford find the money, but somehow small businesses are expected to figure it out.

3. Basic minimum income, or negative income tax (Negative income tax is my preference as it addresses some of the issues with government benefits).
Again, this is ideally a tax cut for the poor, which is unaffordable for the government.

In short
1 The government knows there isn't enough money, which is why the government isn't doing it out of their pocket.
2. There is high agreement that minimum wage becomes destructive at some level, and nobody has made an economic argument for why $15/hr is the right wage for the entire province, or even a small subset of the province.
3. The studies are mixed, but the best and most recent studies, along with the business owners suggest that there will be at least a short term drop in income for low wage earners. ie it will hurt those it is intending to help.

This is simply a political strategy to win the next election.


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## Just a Guy (Mar 27, 2012)

sags said:


> Some of the arguments against minimum wage, universal income and raising business taxes would resonate louder if they weren't contrasted by record level business profits.


Some of the arguements for minimum wage or universal income and raising business taxes would resonate louder if the people benefitting from the handouts would show a tendency to change and improve their lifestyles instead of just demanding more. There are a few who actually do, but there is a vast majority who don't. You could blame education, environment, or whatever (not that throwing money at them will change any of those really), but ultimately it does come down to the individuals and their choices.


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## hboy54 (Sep 16, 2016)

none said:


> This is somewhat ironic as posts such as yours are a source for my growing distain for the uneducated. For those who think they are allowed an opinion about something they're obviously ignorant about. Here, read this: http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5


The real irony is how I as a member of the ignorant and uneducated class somehow ended up with all the money and now have to transfer it via the taxation system to the educated class. Why don't my betters well do better? Very puzzling.

Hboy54


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## MrMatt (Dec 21, 2011)

hboy54 said:


> The real irony is how I as a member of the ignorant and uneducated class somehow ended up with all the money and now have to transfer it via the taxation system to the educated class. Why don't my betters well do better? Very puzzling.
> 
> Hboy54


Lacking formal education doesn't mean you're ignorant.

Having formal education doesn't mean you're ignorant of areas outside your specialty, but it helps.

Most people are economically illiterate, and there are too many of them in government who don't actually understand the systems they're damaging. 
To be fair, they quite honestly don't care because they feel their goal is more important. 

When it was pointed out some employers would go under (and take the jobs with them) the current government was pretty clear that they weren't concerned. 
The cognitive dissonance is rather apparent.


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## andrewf (Mar 1, 2010)

There is likely some impact. My work is related to replacing human effort with capital, and these changes only help ROIs for such projects. Many of these projects would proceed regardless, but the better ROI makes it more appealing for management.


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## MrMatt (Dec 21, 2011)

andrewf said:


> There is likely some impact. My work is related to replacing human effort with capital, and these changes only help ROIs for such projects. Many of these projects would proceed regardless, but the better ROI makes it more appealing for management.


Thing is it will get easier to automate the Tim Hortons process.
Walk in with your Tims app, scan it, and the robot can make your coffee.
They already automated measuring sugar and milk/cream.


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## nathan79 (Feb 21, 2011)

KaeJS said:


> Well.. I'm probably not the best person to talk to about it. But it definitely isn't the job of society to fix other people's situations. And nobody is stopping anybody from starting their own business.
> 
> We already give away $700/month to whoever wants welfare. Can you believe that? It's not even a loan!!
> 
> Why does our society allow this to happen? =)


Maybe because the alternative would cost more?

Sure, we could get rid of welfare, minimum wage, health care, etc. But then many more people would turn to crime. We'd have more people addicted to drugs and start breaking into your house/car to feed their crack habits, etc. Then we'd have to hire a whole bunch more police officers, build more prisons, and pay higher insurance rates for our cars/stuff getting stolen/trashed.

You're right, we would have cameras everywhere, except it would be due to the skyrocketing crime rate, not because of socialism.

Remember, the reason we have all of these social supports is because we tried going without them and failed. Of course, that's not to say we can't improve or make some of them more effective, or even replace them with better ideas.


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## peterk (May 16, 2010)

none said:


> This is somewhat ironic as posts such as yours are a source for my growing distain for the uneducated. For those who think they are allowed an opinion about something they're obviously ignorant about. Here, read this: http://www.businessinsider.com/minimum-wage-effect-on-jobs-2016-5


This is somewhat ironic as posts such as yours highlight the growing disDain from regular people towards PHD government employee biologists who think their "knowledge" about economics is more robust and substantial because they read some Business Insider articles.

I'll save you the trouble of replying with "lol - see your ignorant response proves my point", as you like to do, so that you don't waste anymore of your precious time conversing with the ******** than is absolutely necessary, and can get back to your important readings and crucial work in securing our fisheries with your graphs and status updates. :wink:


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## KaeJS (Sep 28, 2010)

none said:


> KaeJS said:
> 
> 
> > Ah, and herein lies the socialism and my growing disdain for Canada.
> ...


Are you serious?

Minimum wage increases will always have an affect on jobs. People who work minimum wage usually work in environments where employers can afford to fire unspecialized people and then acquire them again later with ease if need be.

Very rarely does the employer suffer. Most often, prices of products and services increase, jobs are lost, or the product/service quality will suffer.

I think if most people had 10 employees working for them and had to pay them all $2 more an hour... They'd likely fire the one with the worst work ethic to eat $14 of the $20 increase. Then they would just push the other 9 to work harder...

If you wanted to make the $6 back that's left over you can slightly increase your prices by a marginal amount.

I feel like this would be a common scenario.


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## KaeJS (Sep 28, 2010)

Just a Guy said:


> Some of the arguements for minimum wage or universal income and raising business taxes would resonate louder if the people benefitting from the handouts would show a tendency to change and improve their lifestyles instead of just demanding more. There are a few who actually do, but there is a vast majority who don't. You could blame education, environment, or whatever (not that throwing money at them will change any of those really), but ultimately it does come down to the individuals and their choices.


This is the real problem.
And also why I think welfare should be a loan. Not even necessarily an interest loan. It could even be interest free. But it shouldn't be free money.

Lots of people get welfare and sell drugs on the side or even work for cash. Sites like Kijiji and Craigslist have made it easier to work for cash consistently.


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## MrMatt (Dec 21, 2011)

nathan79 said:


> Maybe because the alternative would cost more?
> 
> Sure, we could get rid of welfare, minimum wage, health care, etc. But then many more people would turn to crime. We'd have more people addicted to drugs and start breaking into your house/car to feed their crack habits, etc. Then we'd have to hire a whole bunch more police officers, build more prisons, and pay higher insurance rates for our cars/stuff getting stolen/trashed.
> 
> ...


"The alternative", there is a middle ground. We can't simply hand out enough so everyone can have a decent life without working, and we can't not offer some charity. I don't agree that everyone will turn to crime without these things. 
Crime is basically when people see those actions as the best way forward for them, and they've given up on lawful means. I'm seriously more concerned about disenfranchisement and the feeling that the deck is stacked against you than simply being poor. That will drive crime.

The problem is that the net recipient group has to say sustainable, but this group is growing like crazy to the point of unaffordability.
We've created poverty traps in the social safety net which is making this worse, and there is a growing number thinking they are entitled to a middle class standard of living without ever putting in the work.

The fact is a lot more lower paid jobs are going to be lost, and there are going to be more net recipients. Those marginal businesses will fail, or the jobs will be automated.

When there isn't enough money in the pot to pay for all these services, they're going to get cut, then what?
What happens when there isn't enough health care to go around, they ration it, or some group will decide you don't deserve care.
Look at organ transplants, there aren't enough, so they make brutal decisions about who lives and dies. 

As hospitals run out of money, hospitals will have to make the same decision, and they already are. The best way out is to get more money, that means more people working, not less.
Get more jobs and more productive people, someone working an hour at $14.99 is much better than not working at $15.


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## Just a Guy (Mar 27, 2012)

Funny, things like minimum wage, UBI, social security nets and such are a relatively "new" idea that arose out the the world war years.

Before that, they never really existed, yet the world wasn't full of criminals and drug addicts. True, life wasn't as easy as it is today, but it was a far cry from the episode of badlands that people think will occur if the handouts were taken away.


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## new dog (Jun 21, 2016)

I would call handouts and the minimum wage as separate issues. Minimum wage assumes someone is actually working for something rather then doing nothing as in hand outs.

To me we are not hard enough on drug users and those who think they are owed a living when clearly they can do better. Yes we throw them in jail or do nothing but the traditional jail or doing nothing is not a very good system of rehabilitation. Drug users committing crimes should be subjected to a full cleansing and withdrawal before being let out and thrown back in if they do it again.


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## sags (May 15, 2010)

It isn't the worker's fault and it isn't the government's fault.

If business shared their profits from productivity there would be no need for the government to force them to.

How sad for those business who have to be told .........."sorry, paying poverty wages so you can earn more money is not acceptable".

Business has access to our marketplace. They use our infrastructure. If they don't want to contribute to building a just society it would be good if they just leave.

We got along without them before we met them...........we'll get along without them now.


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## james4beach (Nov 15, 2012)

Just a heads up that I think I might move this discussion to General since it's not the typical Investing kind of thread.


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## lonewolf :) (Sep 13, 2016)

sags said:


> It isn't the worker's fault and it isn't the government's fault.
> 
> If business shared their profits from productivity there would be no need for the government to force them to.
> .


 It was not that long ago government would not let business share in their profits i.e., wage & price controls. To attract better workers businesses started offering benefits which now they are having trouble paying.

The government is always late to the trend  Workers will not need to be protected from inflation in the deflationary crash

If the government really wanted to help out they would reduce taxes that pay for government corruption & stop blaming business


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## peterk (May 16, 2010)

KaeJS said:


> I use a lot of margin and write a lot of Bull Put Spreads. I always do weekly duration. Never more. I do these spreads on large companies that I see as value plays. Typically companies that are well known, have solid models and pay dividends. I usually keep to companies in the $50-100 range. I only play US equities. I never play within 2 weeks of earnings dates. I avoid all weeks with shitstorm possibilities (like presidential elections, or writing options on retail during a week with retail sales numbers, or even when competitors have earnings... Ex, I wouldn't write an option on NKE if UA had earnings that week.)
> 
> This past week, I wrote a ton of contracts on CVS. I was able to get a $0.26 net credit on a $72/$71 spread.
> 
> ...


Bear with me, cause I don't know much about this options game...but even though a 90% win seems great, when your max profit is 26c and your max loss is 74c, you need to win 3/4 of the times just to break even don't you? And when you're selling the put that's just ~1% out of the money, at the money essentially, you're taking an almost 50/50 gamble of the stock going your way, no? So you're winning so much because the stock market is rising. But if it falls gently or rapidly or volatility begins, you're going to be repeating that $2100 loss week after week and burn through all the money in short order.


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## lonewolf :) (Sep 13, 2016)

peterk said:


> Bear with me, cause I don't know much about this options game...but even though a 90% win seems great, when your max profit is 26c and your max loss is 74c, you need to win 3/4 of the times just to break even don't you? And when you're selling the put that's just ~1% out of the money, at the money essentially, you're taking an almost 50/50 gamble of the stock going your way, no? So you're winning so much because the stock market is rising. But if it falls gently or rapidly or volatility begins, you're going to be repeating that $2100 loss week after week and burn through all the money in short order.


 Take into account beta slippage the win rate will have to be a lot more then 75%. If bet size is kept constant win rate can be lower. The system will keep working till it stops working


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## Just a Guy (Mar 27, 2012)

Yes, let's not forget all those profitable businesses who screw employees to rake in profits...Woodward, Eatons, Sears, five and dime, Woolworth, k-mart. Still making a "record profits" off the backs of the little guys...oh wait. They're all the "bad guys" until they no longer exist. 

I remember when Safeway was once the largest employer in the private sector, in fact it was the only private sector employer to make the top 10 in Alberta at one time...today they are a shadow of their former might who got bought out years ago by Sobey's.


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## KaeJS (Sep 28, 2010)

peterk said:


> Bear with me, cause I don't know much about this options game...but even though a 90% win seems great, when your max profit is 26c and your max loss is 74c, you need to win 3/4 of the times just to break even don't you? And when you're selling the put that's just ~1% out of the money, at the money essentially, you're taking an almost 50/50 gamble of the stock going your way, no? So you're winning so much because the stock market is rising. But if it falls gently or rapidly or volatility begins, you're going to be repeating that $2100 loss week after week and burn through all the money in short order.


Assuming I never altered my strategy and when I lost, I lost the full amount - that's correct.

But most of the time you will not lose the full amount unless you are in a bear market. Once in a bear market, your strategy will change drastically.

You will likely be buying puts and/or selling Call Spreads.


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## KaeJS (Sep 28, 2010)

lonewolf said:


> Take into account beta slippage the win rate will have to be a lot more then 75%. If bet size is kept constant win rate can be lower. The system will keep working till it stops working


Beta slippage will have no impact on individual stocks. There is no extra underlying, rebalancing or leverage. Especially when writing weekly options your decay (theta) is pretty much constant and your delta and volatility is fairly constant as well.


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## peterk (May 16, 2010)

KaeJS said:


> *Assuming I never altered my strategy* and when I lost, I lost the full amount - that's correct.
> 
> But most of the time you will not lose the full amount unless you are in a bear market. *Once in a bear market, your strategy will change drastically.
> 
> You will likely be buying puts and/or selling Call Spreads.*


How on earth will you know when that is though?


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## james4beach (Nov 15, 2012)

peterk said:


> How on earth will you know when that is though?


And if you really can identify the end of the bull and start of the bear market, why not just go leveraged long everything (say with SSO) for now, and then go short everything or 100% fixed income during the bear?


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## lonewolf :) (Sep 13, 2016)

KaeJS said:


> Beta slippage will have no impact on individual stocks. There is no extra underlying, rebalancing or leverage. Especially when writing weekly options your decay (theta) is pretty much constant and your delta and volatility is fairly constant as well.


 Do the math there is beta slippage on your account. Money management 101 you must run the numbers to know if your system has to keep bet size constant size & perhaps rise slowly or if can compound losses & gains.

Most systems can not compound gains & losses.

Most do not have a clue what I m talking about & do not realize by compounding gains & losses it is causing them to lose money. Yet if bet size was kept constant the system would be less likely to lose money if they have an edge.

It is utmost importance to understand the proper money management for your system.


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## lonewolf :) (Sep 13, 2016)

KaeJS said:


> Beta slippage will have no impact on individual stocks. There is no extra underlying, rebalancing or leverage. Especially when writing weekly options your decay (theta) is pretty much constant and your delta and volatility is fairly constant as well.


 Do the math there is beta slippage on your account. Money management 101 you must run the numbers to know if your system has to keep bet size constant size & perhaps rise slowly or if can compound losses & gains. Most systems can not compound gains & losses. Most do not have a clue what I m talking about & dont realize by compounding gains & losses it is causing them to loss money. Yet if bet size was kept constant the system would not lose money.

It is utmost importance to understand the proper money management for your system.

Some how pressed button twice, James if read please delete as is duplicate


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## KaeJS (Sep 28, 2010)

peterk said:


> How on earth will you know when that is though?


You won't at first. But it will become clear. Realistically... At these prices and current valuations and given the thread title, I am already expecting that these uptrends will start to level out at some point.

The purpose of the spreads is to protect and limit downside (or upside in a bear market). We all have heard it before:

Stairs up, elevator down.

If you are taking the stairs down, then options are still profitable by doing spreads with calls.

If we are taking the elevator down... Well.. all of us are going to know about it because everything will be falling 2+% everyday. That's where financing puts by selling calls comes in.

Assume a bear market.
You buy a $50 Put for $0.50.
You sell a $50.50 Call for $0.25

Worst possible outcome?
ABC stock goes up and you are short at $50.75. It shouldn't be going up if you are in a bear market though.

You can also mitigate this risk by owning the stock instead of doing it naked, but you'd likely want to buy twice as many puts as you own so that when it goes down you actually make money and not just cover your losses.

There are lots of strategies and they all have different pros and cons. I do lose sometimes. But not often. I also generally recover a lot of what I lose through options.


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## KaeJS (Sep 28, 2010)

james4beach said:


> And if you really can identify the end of the bull and start of the bear market, why not just go leveraged long everything (say with SSO) for now, and then go short everything or 100% fixed income during the bear?


Because you have no mathematical house advantage by doing this. You have no protection.

The market can and has dropped 10% in a single day before for various reasons or no reasons at all. It will likely happen again in the future. You can't just go crazy and buy leveraged stuff because you don't have any advantage over anyone else. In fact, you have less advantage because decay works against you and so does mathematics.

The whole purpose of writing spreads is to say "I don't know for sure... But this SHOULD be OK. If it's not OK, then protect me."

Buying leveraged products is more like hoping for the best...

Plus. I can cherry pick individual investments with spreads. I can't cherry pick with ETFs.


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## KaeJS (Sep 28, 2010)

lonewolf said:


> Do the math there is beta slippage on your account. Money management 101 you must run the numbers to know if your system has to keep bet size constant size & perhaps rise slowly or if can compound losses & gains. Most systems can not compound gains & losses. Most do not have a clue what I m talking about & dont realize by compounding gains & losses it is causing them to loss money. Yet if bet size was kept constant the system would not lose money.
> 
> It is utmost importance to understand the proper money management for your system.
> 
> Some how pressed button twice, James if read please delete as is duplicate


Are you talking about how if you invest $100 and make 10% it becomes $110, but then if you lose 10% it becomes $99?

I don't think beta slippage is the correct terminology for what you mean. Usually beta slippage is used colloquially as volatility decay.

There is no beta slippage for my option strategy. Each week is a separate and independent event from one another. As bet size increases, profits and losses increase in a linear fashion.

If I was winning, then losing, then winning, then losing on a consistent back and forth basis... Then yes... I guess there would be "slippage". But that's not the case when you win 90% of the time because you still end up with more than you had a year ago and in my case my downside is limited so I can't have an unlimited decay to the downside.

The most hurtful slippage would be a scenario where I have a 50% win rate (from a slippage only point of view).


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## lonewolf :) (Sep 13, 2016)

90% win rate average win 10% average loss 75%
To calculate slippage from compounding of 10 trades 9 winners & 1 losing 
Google compound interest calculator

principal enter $100
interest rate enter 10%
years to grow enter 9

hit enter button result $235.79

google percentage calculator

enter 25% of $235.79 answer = $58.75



Keeping bet size constant @ $100

Every win is $10 (10% of 100)
there are 9 wins
9 x 10 = $90
100 + 90 = $190

one loss of -75% of $100 = -$75

190 - 75 = $1.15


The compounding system returns a negative return the constant bet size returns a positive return. A lot of professionals will increase bet size though @ a slow rate maybe 1 or 2%


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## paulw789 (Dec 8, 2017)

The markets are up because earnings are up. Since the start of 2016, S&P 500 earnings are up 31%.

Why are they up? Because the economy is doing so well. Even the Federal Reserve meeting in December more-or-less said that everything is right in the "sweet-spot" right now.

Now it is unlikely that earnings will keep rising at these rates. It will be a little slower.

But there will not be a 2001 or 2007-08 market crash until there is 2001 or 2007-08 like economic recession and earnings fall drastically.

That will not happen until inflation grows substantially and central banks raise rates to put the brakes on. The US Federal Reserve does not see that even happening in the next three years.


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## KaeJS (Sep 28, 2010)

lonewolf said:


> 90% win rate average win 10% average loss 75%
> To calculate slippage from compounding of 10 trades 9 winners & 1 losing
> Google compound interest calculator
> 
> ...


Your example assumes that I lose 75% on my losing trade. With the way I am doing spreads, that is impossible. In fact, I am usually limited to a total loss of roughly 3% assuming the trade goes 100% sour.

Unless my mathematics are wrong, then you made a wild assumption that when I lose, I will only have 25% of my account left. Am I correct?


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## KaeJS (Sep 28, 2010)

@ lonewolf,

Here is the real calculation for the slippage with my strategy:

$100 x 1.01 x 1.01 x 1.01 x 1.01x 1.01 x 1.01x 1.01 x 1.01x 1.01

This equals: $109.37

This is 9 wins or 9 weeks of trading.

On the 10th week, I lose 3%.
The formula becomes:

$109.37 x 1.03 = $112.65
$112.65 - $109.37 = $3.28

Your total left over figure after 10 trades or ten weeks is:

$109.37 - $3.28 = $106.09

Total return of 6.09% over a 10 week period.

That is the slippage.


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## lonewolf :) (Sep 13, 2016)

I never ran the numbers though read that last year was the first year ever without a down month. There was a big rally after Trump got elected in the previous fall so Nov & Dec without checking numbers to confirm Nov & Dec of 2016 my guess could be added to the list of consecutive up months, Jan of this year is also on track to be added.


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## KaeJS (Sep 28, 2010)

Well, it's about time!


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## peterk (May 16, 2010)

Yo KaeJS. What's been going on for a few months with you? How have your weekly spreads been going lately since the February volatility? Break it down for us. )


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## james4beach (Nov 15, 2012)

Yes that's a good question. The February volatility event (XIV blowup) disrupted many people in the crowded volatility trades.

I think any trader who breezed through February should pat themselves on the back, especially if they're still making money on these trades in 2018.


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