Well, if John Higgins of Capital Economics puts his money where his mouth is:

In the bearish camp is John Higgins, senior markets economist at Capital Economics. He expects to see the S&P 500 back down around 1,000 by the end of 2010 and cited several points to warrant caution

Here is a reminder of how far the market has come this year:

The black line is where Capital economics think it will go.

If they believe their view, they can buy the 1100 puts and sell the 1060 puts for June, at a net cost of 11 points.  This strategy produces 40 if the market is below 1060 in mid June, and 0 if it is above 1100, and a smooth movement between those levels (it is called a PUT SPREAD).  Therefore Mr Higgins could almost quadruple his money if the market goes down 7% by then.  If it hasn’t happened by then, Mr H can make money by doubling up on a December strategy of some similar kind.

Being able to predict the future in these markets is incredibly lucrative.  JH must be a very wealthy man.   Or 2010 is about to make him very wealthy.

Or he is wrong.


4 thoughts on “A senior market economist is about to become very rich

  1. Capital Economics has a policy of being on the periphery if not the extremes of the consensus, it makes the most noise. Or at least on most variables, but 1yr equity market forecasts are the realm of glue-sniffers, so in this instance a 12% decline doesn’t compare that badly to the other bears.

  2. I’m sure there was an MR post a while back about this sort of thing, basically saying we should judge his comment by how much he’s staking on it. So there’s three options: he’ll win, he’ll lose, or actually he never really believed it in the first place.

  3. The move he predicting is hardly out of a likely range – it was there after all less than six months ago. And we don’t know what is meant by expects, maybe his expectation of it being there is only slightly higher than his expectation it’ll rise to 1,500. In other words i think you’re being a bit harsh.

    1. A bit. But he should give a fanchart not a point. And I agree with Andrew: a real time portfolio would be handy too.

      I think they cant have it both ways: the drama of the big forecast, without this sort of sniping. Because you only hear later when they are right.

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