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The Recession

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Author’s Foreword

Due to the news of Premier Events returning to MTGO, the main premise of the article, that the MTGO market may not yet be at its bottom, has become outdated. Certain parts of the article have been rewritten to fit with the new information. However, I feel that the thrust of the article, that the fundamental problems of MTGO’s platform structure have not been resolved and that the market will be bearish in the long term, still stands.

The Stock Market

I first started speculating in the stock market freshman year of college during the 2008-2009 stock market crash.

Here is a graph of the Dow Jones Industrial Average (DJIA or Dow 30) over the period from August 1, 2008, to October 31, 2008, which was around the period that I first started speculating.

graph1

A quick introduction to the index used to create this graph. The Dow 30 is a stock market index that keeps track of 30 blue-chip stocks listed on the New York Stock Exchange.

You can see that there is a sharp drop of 25% over the course of a month from mid-September to mid-October. This isn’t your average day stock market that moves 1-2% up or down every day. After the crash, however, you can see the stocks beginning to stabilize by October.

The market crashed because the fundamentals for the stock market were lacking. Financial instruments backing mortgages were expected to continue an unreal rate of increase in value because houses were exponentially growing in value. When the housing market crashed, the value of these assets plummeted. To give you an idea, Citigroup, one of the largest bank holding companies in the US, lost over $27.7 billion in the year 2008. Without the US government to back up the giant bank through TARP and other regulatory programs, the third-largest bank in the US would most likely have gone bankrupt.

There are a lot of other things that happen during a bear market (bear because a bear mauls downwards, as opposed to bull markets because a bull thrusts its horns up).

  1. In a bear market, volatility goes way up because no one knows where the market is going. Volatility is defined as the variation of price of a financial instrument over time. Because any point in a bear market could be the turning point or just another point where the prices are ready to tank more, speculators tend to overreact to the changes in price from day to day.
  2. No one knows when a recession will end. This point is key as to why the sell offs continue in a recession. Prices go up and down without any regard for fundamentals of a stock’s value. To avoid being stuck with a stock that is diving in prices, shareholders exit their positions, adding to the already-depressed levels.
  3. This third point is huge. Recessions are the best opportunities to pick up on underpriced stocks, especially on stocks with good fundamentals and strong balance sheets/income statements. More on this point later.

So what happened next? Did the stock market stabilize like at the tail end of the graph?

graph2

Here is another graph of the Dow 30 over the period of October 31, 2008, to May 1, 2009, continuing from where we left off on the last graph.

The market continued to plunge over the course of another five months, reaching its lowest point on March 9, 2009, at 6,547, down from the highest point in 2007 of 14,164, or more than a 50% loss. Just because there was a previous drop and a stabilization doesn’t mean that trend will continue going forward.

Keep in mind that these aren’t your average stocks but the most conservative, the cream-of-the-crop stocks (e.g., Exxon Mobil, McDonald’s, Nike, Microsoft, Coca-Cola, etc.). The market can be unpredictable at times, and it’s difficult to tell where the turning points are.

The MTGO Market

I will now bring the article back to MTGO. My point isn’t to say that the sky is falling and that everyone should sell all their cards on MTGO and hide their tickets under a couch. What I’m trying to convey is that there is a real possibility that we haven’t seen the worst yet.  Even though the Premier Events will be back, the MTGO program being used is still as broken as ever.

There are a number of similarities between the stock market crash and the current market condition of MTGO. The fundamentals are lacking for both markets. MTGO is a terrible excuse of a program for the number of players throwing money at it. There is also a high degree of uncertainty about where the light at the end of the tunnel is, especially given that Wizards of the Coast doesn’t have a good track record in dealing with the software side of things.

However, I believe the other side has some very good reasons as to why it may be a good time to be buying in.

Here are what I believe are the points in favor that the worst has passed:

  1. Prices have depreciated enough from the previous level that even if prices drop further, you’ll still get cards at a discount. You might lose, but you probably won’t lose a whole lot.
  2. Prices seem to have become more stable over the past week now that we are past the initial sell-offs, most particularly due to the effects of redemption creating a price floor.
  3. Wizards of the Coast cannot leave PTQs and the Magic Online Championship Series down for too long because of the loss of potential profits.

I believe that the bearish outlook will continue as platform issues have yet to be resolved, although the near term will be bullish because of the incoming demand since Premier Events will be back.

  1. I highly recommend reading the articles from Hipsters of the Coast (see article here) and toordeforce (see article here). As it stands, the estimate for the downtime is anywhere from four to six months, and it may take up to three years for next version of MTGO to be available. The longer the systems are down, the more likely it is that card prices will go down further because fewer players will be playing the game.
  2. The central issue that there is only one master server for the multiple servers that are running the games. Until this key architectural flaw can be worked around, the delay and lag and time outs on MTGO will be here to stay. MTGO Version 4.0 has been around for more than a year and is expected to replace the current MTGO Version 3.0, yet there has been little progress in improving MTGO Version 4.0.
  3. There is a very careful balance between letting the servers go down for upgrades/redo’s and further agitating players because of the instability of the current servers. Wizards is in a tough spot because both neither option is pretty. Change in MTGO is long overdue, but change isn’t going to be easy for a program on which hundreds of thousands of players are depending.

Whatever you decide to do with your MTGO cards, please do so with the fundamentals of MTGO in mind. The truth of the matter is that MTGO hasn’t been fixed yet and the root architectural problem is still unresolved. Whether Wizards announced that Premier Events to be back for revenue reasons or because the system is better now, there will come a time when the system will be down again.

Thank you for reading article, I hope that it was informative. You can find me on Twitter @fyawm

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Enmou Gao

Enmou Gao

@fyawm     -     Email     -     Articles
Tim Enmou Gao is a writer for Brainstorm Brewery and resides in Los Angeles. A Modern-phile at heart, he is currently piloting a RUG Delver. You can reach Tim on Twitter or /u/fyawm on Reddit.
Enmou Gao

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About the author

Enmou Gao

@fyawm     -     Email     -     Articles
Tim Enmou Gao is a writer for Brainstorm Brewery and resides in Los Angeles. A Modern-phile at heart, he is currently piloting a RUG Delver. You can reach Tim on Twitter or /u/fyawm on Reddit.

4 comments

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  1. Jason Alt

    I think Marcel and I (not that my opinion means anything) have more confidence in prices heading back up on the sheer virtue of this announcement. I am not saying you are wrong and you supported your argument well. I just think people played MODO when they knew it was bad and it is likely to improve.

    1. Enmou Gao

      Thanks for the comment, I agree with everything you’re saying.

      The question is one of short term and long term. Short term, I’ve bought into all the Modern fetches other than Arid Mesa because I know that the Fetches will go back up to pre-crash prices. Long term, I know that prices will crash again once MODO servers go down again, who knows for how long, and the trend will continue until Modo V4.0 is actually works as intended.

  2. J.

    This is exactly the type of critical thinking and logic based decision making that will give one an advantage in controlling the true cost of MTG. Right or wrong I am not sure is relevant. I took nuggets that I think add value to my own thought process. That is what critical thinking is all about.

    I really enjoyed it.

    J.

    1. Enmou Gao

      My article is… not worthy of such awesome praise :)

      Glad you enjoyed the article! Writing it was fun as well.

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