Friday, October 19, 2007

Did Gordon sell the bottom?

On the trading floors that I used to work on in the investment banking industries, one of the worst sins was to "sell the bottom."

That's when a trader has a "long" position in something - he buys a treasury bond future, currency, option, or whatever - and the market moves against it. The pain starts, and grows with every tick the position moves down. The trader hangs on, hoping the market will come back. The pain intensifies. He still believes in his position, but the market seems to say otherwise, and he starts to question his own judgment.

The market moves further, and the pain gets excruciating. The trader now has lost his compass: the position seemed so correct at the start, but now, all he can see is reasons why he was wrong. He talks to other traders, asks their opinion, substitutes their opinion for his own.

The market moves further against him, and he can stand the pain no longer. He sells.

But he doesn't just sell his position. He wants to make up for what he lost, so he takes a short position, hoping the market will keep going down so he can cover the short position at a profit, and make back some or all of what he lost.

But guess what happens? As soon as he "goes short," the market recovers, and goes up all the way past the level where he took the "long" position in the first place.

It's the cardinal sin on the trading floors - the classic "Sell-the-bottom-whipsaw."

Did Gordon Smith sell the bottom of the Iraq war?

It sure is starting to look like it. It is starting to appear as if you can mark the low point in the war in Iraq as the date that Gordon Smith made is infamous speech on the floor of the U.S. Senate. It seems that virtually since that moment, the news has gotten better from Iraq. The surge seems to be working, casualties are way, way down, and Al Qaeda is on the run.

And Gordon didn’t just “sell” his long position on the war and take his losses. He went “short” big time. He basically called the President a criminal, and even said we should “cut and run.”

So he lost on the way down, and now is losing on the way up – a classic “Sell-the-Bottom-Whipsaw.”

6 comments:

Anonymous said...

Great analogy!

James Kerrigan said...

Rob, if you believe so strongly in the Iraq War, why are you over there fighting it?

Face it: you're afraid.

Anonymous said...

James, if you are so strongly against the Iraq War, why aren't you over there fighting with Al-queda?

Face it: you're an idiot.

Anonymous said...

James: is that really the best you can do to come up with something clever? My condolences.

Anonymous said...

James is fighting for Al Qaeda more effectively and safely here at home than he could in Iraq, that's why he's here and not there.

James, Face it: You are fighting for Al Qaeda here. Get some balls and join your "freedom fighter" terrorist friends blowing up women and children in city markets and mosques in Iraq. If they won't take you, I'm sure Iran or the Taliban in Pakistan will.

Anonymous said...

I have always believed that getting rid of Sadam with force was correct. I also believed that nation building in that area was also correct. I believed that the fight would be door-to-door residential with troops on the ground, not airforce bombs. I also believed that it would take many $Billions and many years (decades ala Germany/Japan?) to achieve success. I also believed that the final outcome might not look like a single federated state, but maybe three states (kurdistan, sunni-ville and shiite-stan) not unlike the former Soviet, Czech or Yugo unions. And I also believe that the unknown costs would be worth the potential gain of achieving a beach-head of democracy and Western ally in the middle-east.

I believed all of that then. And I still believe that today.

I am so glad that Sen. Smith is just a two-bit Senator desperately trying to remake his red image in a blue state, while the President is changing history, the real results of which will not be fully known until his daughters have daughters, and he is long dead.