Thoughts – An Alice in Wonderland Market
Alice laughed. "There's no use trying, one can't believe impossible things."
"I daresay you haven't had much practice," said the Queen. "When I was your age, why sometimes I believed as many as six impossible things before breakfast!" Here in the US, the Fed, along with our White house and economic leaders want us to believe completely impossible things. And judging by the people that call in to talk shows, especially Cramer's, it's apparent that many people are perfectly willing to believe absolutely impossible things. Nothing drives this point home better than the two former Bear Stearns hedge fund managers who were found not guilty of securities fraud in federal court in Brooklyn. Despite emails between the two that show explicitly that they knew the toxic sludge they were pawning off on people was destined to blow up, WHILE they assured investors of the high quality of those instruments, the jury found no evidence of fraud. And worse than that - one of the defendants, Mr. Cioffi was also found not guilty of insider trading charges on accusations that he moved $2 million he had invested in one of the failing funds to another less risky fund while telling investors he was adding to his position. The moral of that story is what The Duchess said: “The more there is of mine, the less there is of yours.”
And what's a little flip flop among friends? Well, Al Gore finally sat down and did some real math surrounding Global Warming and he sounded a lot like Alice: “Let me see: four times five is twelve, and four times six is thirteen, and four times seven is -- oh dear! I shall never get to twenty at that rate!” So Al decided to change his mind! In a most stunning reversal, Al Gore has now changed his mind on Co2 being as much of a concern in Global Warming. According to Al, Co2 is no longer that mean nasty gas that we all need to live (on this planet) but rather it’s now "black soot" and methane that are the main culprits for the majority of global warming. Al did admit to Newsweek magazine that he does understand that his position change might make it a bit harder to rally the people around Carbon Taxation. Well it's really quite simple, when people were fat, dumb and happy from 2003 to 2007, everyone bought Gores dog and pony show about global warming. But when housing imploded, the stock market crashed, unemployment hit 10%, layoffs, foreclosures, bank closings and lack of credit hit – then of course we set record low temps around the world, and had more snowfalls earlier than ever recorded all around the globe. People started thinking – I’m broke, the system’s broken – why do we need to spend umpteen $ trillions to combat global warming that doesn't exist? As the Eaglet said “Speak English! I don't know the meaning of half those long words, and I don't believe you do either!”
As The Duchess said: “If everybody minded their own business, the world would go around a great deal faster than it does.” More and more people are believing that the Fed did it, they pushed the right buttons, pulled the right levers and somehow we end up all fat dumb and happy, and we're going to party like it's 1999. Honestly, as the Fed (in each country) prints trillions of dollars, each trying to get their currency below their neighbors so their exports can sell, we are seeing a rise in economic activity. You simply cannot push an entire years GDP worth of money into the system without seeing little pools of activity pop up. The masses are looking at this as proof positive that the all-clear bell has rung. That will be a monumental mistake. It is my hope that we ride this market for what it’s giving us in order to save money, pay down more debt, and hunker into a more reasonable lifestyle. In the opinion of many, we aren't going to double dip into recession we are going to roar headlong into depression. I know that sounds horrid, but you don't have to be Alice to "get it". In Alice’s own words: “If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn't. And contrary wise, what is, it wouldn't be. And what it wouldn't be, it would. You see?”
In terms of a ‘Trading Tip’ this week – in the words of Jessie Livermore (famous stock operator) – the big money is always sitting idle. The concept is simply that if the trade you entered hasn't shown any fundamental reason why it's no longer a good buy (or sell), then you must hold through some dips and divots and over the longer haul, as long as your initial trend and hypothesis hold up, you'll make big money. Now – this is a very difficult thing to do. For example – back in March/April, DOW at 6600 – we knew the market would run to 9600 and said so – it started with Ben Bernanke’s statement “consumer confidence will rise with a gradual rise in the equity markets". Now – how did Ben know the markets would rise? Easy, he gave bankers free money to play with – and the markets ran from 6600 to 10K while employment fell, wages fell, commercial real estate imploded, foreclosures hit all time highs, etc. So, we KNEW two things. 1) Ben was going to backstop the market and 2) all that money he was printing would be major inflationary for the commodities. We knew it, we told you about it and we traded based upon it. The take away here is: some stocks we enter as a trade – and earning $2 or $4 a share is fine. There are other trades we enter where it's based on a "theme" such as the falling dollar, and when you enter a "theme" trade, it's fine to skim a bit off the top if the trade shows a good profit, but please do your best to let the balance of your position ride, especially if nothing about the reason for you entering the trade has changed. The big money is indeed always in waiting. When your money is in a trade – you’re always waiting for it to fully develop. When your money is in cash – and you don’t see a trade – you’re simply waiting until things line up properly – and that makes for a great trader.
This week the "Junior Gold / Silver Miners" ETF launched. The symbol is GDXJ. What I find compelling about this is that the juniors are the ones with the biggest leverage. If gold continues up, this little basket of miners should do very well. I'll give it a few days to calm down from the initial launch, but I tend to think that at some point we'll dive into that one.
President Obama’s approval rating dipped below 50% for the first time, as we continue to see retail sales declining, unemployment rising – and deficit spending rising. If you ever divide the amount of stimulus + bailout spent – by the number of jobs created – it would have been less expensive to give every homeowner $50k and tell them to spend it (but that wouldn’t have helped Goldman – humm). We’re still allowing 100% home financing with 2% down – isn’t this what got us into this mess? And courtesy of Steve Forbes – as you look across the landscape of our states – realize that state sales tax and income tax receipts (which make up the bulk of state income) are down 12% and in the 30%’s respectively. Also – according to Bloomberg – mortgage applications (to purchase homes) plunged last week to their lowest level in almost 9 years. Now – how is it possible that people are saying ‘housing has put in a bottom?’ Don’t you have to actually buy something to show that it’s put in a bottom?
Up – pause for a day – pause for a bit – and move up. That's been the pattern for a while now and it played out again Friday. As we said before "lean long, but be cautious" – because at any time the music could stop and you're going to need to hurry to grab a seat. Remember, this isn't the beginning of some bull market bounce that started in March - after 7 months of soaring higher, we are in the stratosphere, and only up here because of fraud, manipulation and Wall Street's desire to finish out the year strong. Those are NOT fundamental ‘theme’ trading strategies but rather the $2 and $4 per share kind. Banks are using the ‘bailout’ funds the FED gave them to move the market (pay their broker’s bonuses) – rather than make loans. Did you know that according to Goldman's 10Q, out of all the trading days last QUARTER they lost money on just ONE? Do you know what the odds are against just losing money on ONE DAY out of a QUARTER? But when you tell me that Goldman Sachs IS the FED – ah – it all comes together for me. Now – what will happen when the FED money runs out - we fall and fall hard. It could be tomorrow, it could be in February it could be in October 2010. Now we should see the market pause for a bit this week. But again - all we can do is lean into the prevailing trend – but I sure wouldn’t be shy about taking profits.
It was a good week last week – in the course of the week we jumped in and sold:
- DIA’s for a $2 gain
- GG for a $6 gain
- NEM for a $6.50 gain
- And broke-even on RIG and UYM
We’re still holding our HL purchased @ 4.50
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Until next week – be safe.