The Difference Between 2008, and 2016

Posted on Mar 18 2016 - 3:01pm by Dan

In February, everyone and their brother was predicting the next recession and ‘the collapse’ of the stock market.  Some even called for a ‘continuation of’ 2008.

And from that time forward, we have done nothing but rally in stocks.  And there is a very real and tangible reason this has happened.

Everyone seems to want to predict the “Next 2008 Financial Crisis“.  Well, let me tell you a little bit about 2008.  You see, unlike many others who want to comment on the markets?  I was actually trading at the time.  Most traders who are trading now, were not trading in 2008

I was.

And although hundreds of us did correctly state what would occur in advance (although we do not see this as ‘prediction’.  The pieces were already in place, and we feel what was going to occur, was unavoidable by March ofwho-is-dan-trader-correct-2008-financial-crisis 2008), the vast majority of the population did not want to believe that such an event would occur.  

That is one of the reasons 2008 happened in the manner that it did.

Remember that the market, is an auction.

There are buyers.

There are sellers.

And agreement is reached upon which the price is struck, or a “mark” of price.

And then the deck is reshuffled with more buyers.   More sellers.  And a ‘mark’.  Bid.  Offer.  Mark.  …. Bid.  Offer.  Mark.

Yes, we are simplifying some aspects of 2008.  But we’re trying to make a point.  We want to highlight this fact … that the market is an auction.  Like a ‘car auction’.  Or a ‘real estate auction’.  Or any other auction.  The ‘auction’ takes place very, very quickly.  But it is still an auction.

This means that when individuals have a belief about the market, they place orders out onto the auction.  And as soon as those orders appear … then they can be triggered!!  This is why people who say: “Well, the market could never …” … are always wrong.  Why?  Because when they believe the market can’t go in a particular direction, such individuals place orders onto the market with the belief that they have found ‘sure thing’ trade.  The problem of course, is that there is no such thing as a ‘sure thing trade’, and therefore as soon as those orders are on the market, they can be triggered.

In order to see another 2008 financial crisis?  One of the ingredients must be that a large segment of the participants in the auction (and this includes individuals with 401k’s) believe that a crisis will not happen.  There must be a long, surrending, slow bleed … of individuals who must be convinved of the truth by making them endure the maximum amount of financial pain possible; which finally exhausts the market of selling orders at the point of ‘capitulation’, or a point wherein they ‘give up’.

That isn’t ‘manipulation’.  It is simply the truth of any auction process.

So as long as we have a situation wherein everyone and their brother (even young people in their rooms who were 14 at the time of 2008) … are trying to ‘predict’ the next 2008 financial crisis?  Barring a global risk event, we more than likely will not have one.

Now excuse me, while I go short the market …

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