Warren Buffett = A$$hole Crook

While it wasn't said by Buffett directly....he's guilty by association AND for his own transgressions.

Civilized people? I guess he means that since they have direct access to the printing press they don't need to buy firearms and canned food for the apocalypse like the rest of the uncivilized world has to!

If you read the article you'll hear Buffett's apparatchik admit that their fund is *opportunistic*.

That's just code meaning they exploit dumb, corrupt politicians for sweetheart bank and insurance deals - deals that come on the backs of taxpayers.

Taxpayers? Oh, yeah, those are the people Buffett thinks should have MORE MONEY confiscated from their wages...

See also:

Warren Buffett - STEALING From Taxpayers!

FDR's Ghost, Taxing Gold Again

I believe the story here is not precisely one of a *new tax* but rather one that simply closes an existing loophole. Allow me to explain.

I know someone who recently sold some precious metals they had been hoarding since the apocalyptic 70s. I believe they received a check for the proceeds AND assurance that the there would be no reporting of the transaction to the IRS. Imagine the ordeal of having to dig up your cost basis on gold or silver bought 30-40 years ago!  And then the ordeal of paying capital gains!

With gold the arch-enemy of a fiat-printing, self-enthroned Big Government....how long did you expect this info-loophole to last?

I'd say to still buy the precious metals. After all, you're probably never going to want to convert it back to dollars. It'll be toted to and for exchange in another less-bankrupt country. Or it'll be used to buy food and ammo!

BTW, this is hardly the first attack by slimy pols on a competitive currency.

Back in the Depression, FDR demanded that IRS agents be present at the opening of any safety deposit boxes or something:

"I, as President, do declare that the national emergency still exists; that the continued private hoarding of gold and silver by subjects of the United States poses a grave threat to the peace, equal justice and well-being of the United States; and that appropriate measures must be taken immediately to protect the interests of our people."

"Therefore, pursuant to the above authority, I hereby proclaim that such gold and silver holdings are prohibited, and that all such coin, bullion or other possession of gold and silver be tendered within fourteen (14) days to agents of the Government of the United States for compensation at the official price, in the legal tender of the Government. All safe-deposit boxes in banks or financial institutions have been sealed pending action in the due course of law." 

Furthermore, since FDR fathered Big Government, we can still sort of blame him the rank thuggery of slipping gold regulation into *healthcare legislation* today.

See also - Book Rec - The Forgotten Man by Amity Shlaes.

Remembering In The 'Golden Years'

Here's a local rumor/story from Boston's South Shore.

Some dude sold his house on Jerusalem Road (wealthy oceanside byway) a little while ago.

Then one day recently he approached the new owners and asked if he could dig something up that he left on the property.

They consented and the octagenarian 'old coot' proceeded to exhume a cache of Krugerrands (gold coins) and whatnot that he had apparently buried years ago!

I don't know how one forgets that - especially with a market price of gold today that almost justifies the long-term investment! Perhaps he had so much other money that the buried gold had slipped his mind?

Or perhaps he's just the typical napping, lose-his-glasses-13-times-a-day 'old coot'?

Palladium - Better Than Gold!

I already mentioned how I tragically dumped by palladium position at $226 in May!

And look, it's gone up another 100 points in the last few weeks. Oh well...

Someone asked me about shorting this metal.

NO WAY. I told him a quick look at a rhodium chart ought to scare him out of that trade. That rare metal went from $350 to $10,000 an ounce a couple of years ago!

A better play, for the insistent palladium bear would be to short the mining stocks - SWC and PAL. Miners across all metals have lagged the underlying commodities, badly at that over the past decade. You watch, palladium will downtick a little and the miners will come in 30%. It took me a long, long time and thousands upon thousands of dollars to learn that miners are real POS.

And within that learning process I learned to get long the commodity, as I did with palladium last year. Only I got in too late and out too early. Timing is beyond everything!

Personally, I won't be touching any of those trades short or long at these levels. I just wanted to say that for insistent shorts, miners have historically been a much better play than futures contracts.

Palladium Soaring!

About now I'm starting to get miffed that I dumped my palladium in May!

Obviously, it was a much better rebound play than gold - on a percentage basis.

The trick was, of course, *entry point* - and maybe *patience*.

Angry Trades

While I ride out big losers in DXO, OIH, TBT, SRS, and SKF....



I took profits in my last remaining *longs* today.

I sold Stillwater Mining at 5.14 today. I had bought it two months ago (way too soon) at 3.87.



And I also dumped my Suntech Power Hlds at 10.81 this afternoon. I had bought it about a month ago for for 5.80.

The Suntech was easy to let out. It had almost doubled and I have plenty of *long oil* exposure in DXO and OIH.

The same goes for Stillwater Mining. I am still long palladium in my futures account so I can afford to let it go. Palladium is trading at near $175 an ounce a multiyear low (I got long around $390 or so). Methinks SWC is only rallying with gold miners as its fundamentals (i.e. spot price) are lagging the yellow metal's.

I messed up on these metals. I, like more than a few others, was discouraged by gold's reluctant, slow drift up in the runaway commodity bull market. So, when commodities weakened, I nibbled on palladium instead of gold or silver. Palladium, though possessing better supply/demand fundamentals, is proving to be a very *industrial* metal. It sold off hard with the collapse of the auto industry.

Meanwhile, gold has held up really well relative to the entire basket of commodities in this *deflationary* environment. Gold's probably going to go a lot higher considering the fact that after 12 years of being a goldbug....I have no exposure whatsoever to gold.

More Golden Analysis

From Briefing.com and Daily Telegraph,

Demand for gold soars as price tumbles - Daily Telegraph (71.71 )

Daily Telegraph reports the onset of a global recession and falling stock markets have triggered a stampede for gold -- the traditional safe haven during times of uncertainty. According to the World Gold Council, exchange traded funds are the main beneficiary of the flight to safety. ETFs experienced their strongest quarterly inflow during the third quarter since the ETFs were launched in November 2004. But the Council added that bullion dealers around the world reported an unprecedented surge in demand for coins and small bars. It said that there had been reports outright shortages of gold and high premiums over the gold spot price. The US Mint temporarily suspended sales of American Buffalo gold 1 ounce coins after its stocks were depleted, while UK, German and Austrian coin dealers have also reported an enormous increase in demand during the third quarter, it added.





The reports of a physical gold (and silver) shortage have been well-documented. In the face of this physical shortage, precious metal futures have actually been dropping precipitously. Gold is down over 30% from its high and silver is less than half it $20+ high spot price from earlier this year.

This only makes sense to the most wacko of gold-nuts who've maintained all along that one should ONLY buy physical metal. For these past few months, they've been absolutely right. Though the physical price has been dropping, too.

So, where do we go from here? A genuine physical shortage just has to be long-term bullish for both metals, does it not?

Though a bear would argue, "Look, even with hoarders loading up on the metals, the prices still are getting hammered. This price action bodes negatively."

I, have no stinkin' clue where the metals are headed long term. Plenty of worrywarts from the previous generation hoarded precious metals; my brother-in-law fondly remembers being instructed by his father to bury a bag of some coins in a hole under their backyard shed. These *prudent bears* and end-of-the-worlders were stuck with these coins and bars and lost money on them for a couple of decades straight.



Now I did nibble on the XAU yesterday at around 77. It's already down to 71. Let's hope I wasn't *waaay too early* - yet again.

Sure their revenues will be lower; and sure, gold miners are terrible investments over the long term; but also keep in mind that *high energy* prices were killing their margins recently. With oil more than halved from its July peak, they should expect some relief in that department.

Is $800 Gold A Falling Knife OR An Opportunity?

"Higher demand"?

The above notice just was posted on kitco.com, a popular *goldbug* website. It seems that all the end-of-the-world types are feverishly rushing to buy more precious metals at these lower prices. I guess I should have waited a few weeks before buying palladium. It's down from $390 to $285 in a month! If some of the banks I am short start to roll over, perhaps I'll buy more.

I don't have any strong feelings about gold. I see it as a tough call. It could very well take a two year break before resuming its uptrend.

UPDATE - It seems I am not the only one to have noticed strong investor demand for the metals. Read this piece here, particularly if you have a proclivity for government conspiracy theories:

The Disconnect Between Supply and Demand in Gold & Silver Markets

April Trading Update

I had to ring the register today on my Wachovia short. Read this morning's catastrophic news. It was a very small trade but making 6 pts on a $30 number so quickly compelled me to cover and move on. I also covered my Capital One Financial short today and my latest Fannie Mae whack. I made 6.25 and 8.25 points respectively!

Here's my updated list of positions:

Bank of America - short from $38, this time. Trading at $35.50 as I type this.

HSBC - short from $71 - a twelve point loser so far. I have added puts in April, May, and January on the way up. It's a foreign bank with lots of exposure to booming (read: "bubbly") China and Europe. If it didn't crater, it'd be the only large bank not to.

H&R Block - another short, trading at 20.44. I'm down about 1.5 points. They have a large, unrecognized exposure to mortgage junk - so the rumors allege. As I was typing this I decided to short some more.

Simon Property Group - short from $86, currently trading $96. It's been pretty darn annoying. I did buy some puts and I added a long position in SRS which is an "UltraShort Real Estate ETF" that has SPG as its largest component. I really need this sucker to start tanking. They lease commercial malls and whatnot. In this real estate meltdown, it's not a question of "if", but of "when".

Wells Fargo - still short Warren Buffet's chief bank holding. Trading at $27.25, right now I am up 3pts and doing even better on my October 30 puts.

But my best short has been First Federal Corp. I bought some pricey puts a month ago and since then the stock has dropped from $28 to $18. I am holding out for zero on this distressed, California mortgage lender.



Now for my longs which....suck.

I added to my Google position essentially twice on its 350 point descent. I got out of my last buy for a small profit but still have some $508 stock. Presently that purchase is 50pts in the red.

Coeur d'Alene is still killing me, it's been hemorrhaging my cash for almost two years now. I am so glad I dumped my Newmont Mining ten points higher. What a POS these mining concerns are! They simply can't get the metals out of the ground.

Also, I unsuccessfully tried to bottom pick First Marblehead, the student lender. I bought at an average of around $7 and ended up dumping it at $4. I figured that I needed to be long at least one of these distressed financials as a hedge against my Armageddon-predicting portfolio of shorts. Luckily, it was a tiny, tiny trade.

Lastly, I did recently initiate a put position on Jones, Lang, LaSalle - a commercial real estate name. That's one of the next bubbles to pop painfully.



Remember I got my butt handed to me these past several months shorting long term Treasuries. Otherwise, I've been batting a high percentage with my recent trades. So piggyback away if you dare.

Stocks, Houses, And Excuses

Sorry for the deafening silence, my flock. I've been tied up trying to re-file my 2006 taxes. I knew the code was labyrinthine and ridiculous, but now I have a deeper appreciation for that characterization. In years past I have always channeled my trades through a business entity or at least used an accountant. But last year I essentially reported my trades as a non-professional customer and I tried to hammer out the forms myself. I made several mistakes and the IRS took notice.



Otherwise, I have been trying to recover from a serious loss I took trying to catch the falling NASDAQ knife. I actually came in really short to start the year but, of course, got flat too early, and then long too soon and too much. As of now I have dumped the position and am chipping away at the deficit.

Today I dumped Newmont Mining and shorted both Bank of America and Capital One Financial (at 54.90, 41.77, and 51.69 respectively). Newmont has actually been a core holding for a while; the mere seven points I made on it will at least get filed as a long term gain (before the AMT kicks it to 21%, effectively a higher tax rate than I would have paid a few years ago with a 20% capital gains rate.)

Gold has exploded and Newmont has barely budged. Reasons for this under-performance abound: higher production costs (think oil and electricity), political extortion, problems replacing reserves, etc. It suffices to say that in hindsight, I should have bought the physical metal in lieu of Newmont shares. I did make some good money in the stock over the last several months: I bought the Jan70 calls at 1.50 and sold them at 4.00, I flipped the June50 calls, and I scalped the stock a few times.

In fact, Newmont was one of the first stocks I ever traded. Back in 1996, gold was $385 per ounce and NEM was $60 a share. Today, gold has rallied to $920 an ounce and Newmont is merely $55. That is some serious underperformance over a 12 year period and it reminds us of Jim Rogers' assertion that mining shares have been the "worst" sector to invest in throughout the history of the stock market.

Just about all I have left in my account besides Google (bought some more today at $550) is a sizable position in Coeur d'Alene, a silver mining concern. I own the stock and January calls (both the 5s and 7.5s). That's another mining position that has pathetically underperformed the precious metals.



I've been pretty much cleaning house in my trading accounts. Gone are my commodity positions that I promised to "never sell": cocoa, coffee, sugar, and cotton. I also covered my short euro position. I actually got out at a great price on MLK day when just about all the domestic markets were closed. If you remember, the Dow futures were trading down 550pts that night. Pretty much the only reason I covered my short euro was to free up some capital for what was going to be a most volatile Tuesday morning. If you recall, I got short at 1.47; rode a loss up to 1.49; then was fortunate to cover at 1.4433.

That euro unwind worked out great as the euro has since bounded back to 1.4755 and I was able to buy the Dow futures early Tuesday morning down 550 points. Not even a couple of hours hence, the Fed predictably made a "surprise" 75 basis point cut in the Federal Funds Rate - and I dumped my Dow Futures for a most rapid 274 point profit!

This is the story of my career. I get killed on my large bets but clean up on the little ones. However, my account purging has been more deliberate than distressed. There's simply so much intraday volatility that I want to take advantage of. In these times, it's best to play it small and nimble. With all this trading opportunity, one doesn't have to swing much of a bat to make $$$$.

These days, I would LOVE to see a big financial stock rally so I could short the lot of them. Selling into financial rallies is and will be one of my game plans for the foreseeable future. Now enough of this boring stock market stuff

Do you watch HGTV?

I admit I watch it aplenty these days. Usually I tape the shows and cruise through them to see the conclusions. Did they buy the cheap house or the one "over their budget"? I also like to see the fruits of "updating".

My wife is less tolerant of some of these shows - and she has a point. Who the (blank) vets a mere three homes and then buys one of them? I'd look at twenty before I even signed a rental agreement!!!

The other day they had on some newlywed couple in Colorado who left their rental (replete with roommates) to "buy" a mountain house for around $210,000. They said they were anxious to stop "wasting money on rent". So what did they do? They bought with 100% financing and a 5-year interest-only loan at 6.87%. They went the interest-only route to "keep the payments down". So after paying $1,400 a month for 60 months - a total of $84,000 - their loan will need to be refinanced at prevailing rates AND they will obviously have zero equity.

So much for not "wasting money"...

Does this sound like anyone you know?

There's another show on HGTV called "My House Is Worth What?" with a most insane premise.



In a nutshell, here's the show - some idiot homeowners guess what their house is worth and then, a real estate agent comes in to give their own best estimate.

The discrepancy between the two "guesses" is mostly a function of the homeowner's ignorance, the real estate agent's perma-optimism, and of course, the current state of the housing market.

It'll be fun to watch the reruns of this show as the housing debacle drags on for years. For example, "Joe and Susie paid $750,000 for this bungalow in Miami. They put about $100,000 more into it...and now, only 6 months later, it's worth $1.5 million!"

That was definitely how the show started out a year or so ago. Now it'll be Joe and Susie's $850,000 investment is on the market for $700,000. Ouch.

Incredibly, this show is mostly about home equity loans. The inquiring homeowner wants an appraisal because they want to take out money to either do an addition or renovate kitchens, baths, and basements. They want to know if they will "get the money back" that they plan on borrowing and "investing" into the house.

It's an insane line of thinking:

My house is worth 500k and I only owe 400k. If I take out 75k to redo the kitchen, my house will be worth at least 575k, so it's a good investment.

Bullsh*t. Renovations should be seen more like SUNK COSTS because you pay interest on the home equity loan and because as you enjoy them, they DEPRECIATE. In fifteen years, your 75k kitchen will be dated; so figure that depreciates at a tune of $1,000-$3,000 per year. Home equity loans amount to borrowing against the future for present consumption. THEY ARE NOT INVESTMENTS.

In fact, today in the marketplace, bonds backed by home equity loans are quite distressed. Largely due to their status as secondary liens, HELOCs are currently trading at pennies (20?) on the dollar. In other words, the primary mortgage owner has first dibs on a foreclosed home and the second dibs, these days, are worth almost nothing.

I wouldn't recommend taking out a home equity loan for renovation UNLESS one had a boatload of equity or sufficient cash on hand to pay off the loan. I just don't get the idea of BORROWING for present consumption. It's this mindset that's made America a nation of debt slaves.

How's this for a radical concept - If your basement costs ten grand to finish....then DON'T DO IT until you have ten grand saved up!!!



This weekend, for kicks I walked through the above "open house". It's been for sale for 200+ days and was recently lowered from $1.7 million to $1.159. It's "relo-owned". Meaning some company moved an executive and essentially bought his house from him. In this case, Frito-Lay is the new homeowner - and they can't be too happy about it.

It's a gorgeous 4,800 square foot home and it's only a few years old. It's way too much house (and money) for me. Taxes are $14,000 a year and when I asked about the heating bill I received this doozie from the realtor,

Realtor - This house is tight. The heating bills weren't bad at all. Only five thousand last year.

CaptiousNut - (laughing). Only five grand huh? Last year was one of the warmest winters on record and oil was nearly 40% cheaper.

What a Moron!

Or, she must think I'm a Moron.

Lemma - Housing prices will go back to 1998 levels.

You think I am crazy, right?

About now, generally speaking, we are nearing 2003 averages. My Lemma is based on the fact that carrying costs are much higher now than they were ten years ago. Property taxes have only been rising; insurance premiums are higher; and utility bills have exploded. Sure, incomes are up, but we'll see how long that lasts.

It's my contention that people across the land STILL underestimate the total costs of homeownership. For example, in this day and age, Americans change jobs all the time. And despite CraigsList and FSBO options, it still costs about 5% to sell one's house. So add on to the higher carrying costs of today's homes, what I submit are higher transaction costs. If people sold one home every thirty years before, I'll bet they are now selling 2.5 every three decades.

In this vein, I believe it's ridiculous for anyone to take out a thirty year mortgage. Okay, maybe it's not completely ridiculous, but what home buyers should probably be looking at is the comparable 15 year fixed mortgage payment. Allow me to illustrate.

Today, a 200k fixed-rate loan at 6% for thirty years would cost $1,200 per month.

The same loan on a 15 year term would cost $1,688 per month.

If $1,200 is the monthly payment you're comfortable with, then reverse-plug it back into the mortgage calculator to see how much it'll allow you to borrow on a 15-year fixed-rate loan.

It turns out, with a fifteen year loan, $1,200 per month will only borrow you $142,000.

Mind you, that's on a non-jumbo sized loan.

If a larger borrower took my advice, instead of taking a 600k 30-year mortgage out, they would reduce their home buying budget proportionately - by $174,000. In this case, if they wanted to be debt-free in 15 years, they'd reduce their intended mortgage to $426,000.

In my opinion, housing could easily see 1998 prices again because buyers are not only paying prices at the top of the historical range,



...they are underestimating the carrying costs, transactional costs, and they are of course assuming steady and gainful employment.

The only thing "steady" in my life is the onslaught of higher monthly bills. Remember, I don't even own a money pit; nor do we have car payments or student loans to pay. Two kids all by themselves are budget busters. They consume more clothes, food, and money each year. They've increased our healthcare costs and introduced a "babysitter" budget that is also relatively new. Their education (whether outsourced or not) could easily cost a tremendous amount of money. Every young family's expenses are on the same, unavoidable, upward trajectory. AND I haven't even talked about inflation.

The fact remains, consumers have too long underestimated their future expenses and overestimated their earnings potential. A fifteen year mortgage makes a ton of sense because of all the new financial burdens that keep getting dropped in your lap. In fifteen years, my son will be going to college - at that point I'd like to be done paying for my house. Furthermore, how the heck do these maxed out, credit card-ramping, home equity-tapping Morons think they are going to save for their own retirements?

Social Security?

Hah! Tell me another one.

Alright, time to sign out.

But I want to ask you people a question. If you daycare your kids at 12 weeks so both parents can work and you can afford the larger mortgage....if you justify it by claiming that daycare is good for the baby's "social skills"...

Don't be surprised when you're old and grey, collecting a Social Security spare change, have no savings to live on, and your spoiled, individualistic kids send you to El Cheapo Nursing Home. Even if they have the big house, and plenty of room for an 'old coot' they will still send you away. They will outsource care for you just as you did for them as daycare babies.

I can't count how many times in recent years I have heard people plop their aging parents in nursing homes, assisted living communities, or the DNR House and quip, "Well, it's better for them socially to be around their peers."

Behold the irony!

Even if you don't teach your kids, they will learn from you.

Marginalizing Investing

As I type this, just today gold is up $24 to $859 per ounce - near the 1980 record of $873.

Oil is up $3.50 to $99.59 per barrel.

The NASDAQ-100 futures are down 44.5 points - a monster decline.

The euro is up a full 150 basis points against the dollar.

And Treasury Bonds are screaming with the 10-year up a full point and the long bond up 1.5 points.

So I ask, why do so many people want to "invest" today when there are trading opportunities and volatility galore?

This generation's Warren Buffets will be traders. Buy-and-hold has been superseded by in-and-out.

Bought A Little Silver

People are always asking me how I trade - how do I decide what to buy and sell.

Here's my answer:

How do you know how which football teams to bet on?

Obviously, you watch all the games, have been doing so for years, and may have even had some firsthand experience playing the sport yourself.

I have been watching the markets all day, everyday, for 12 years. I pretty much trade by feel, by the seat of my pants. Nevertheless, people are constantly asking me for coherent trade advice (though no one EVER takes it). Today I am just going to walk y'all through one little trade that I just made to provide a little window into my thinking.

This afternoon, I bought some silver - March delivery at a price of 14.66. As I type this it's up a bit from there, 20 cents higher.

I bought it primarily because gold is running past the $800 per ounce hurdle.

That's it. Nothing more complicated than that. If gold can set a multi-year high, it's not inconceivable that silver jumps 50 cents to make it's own "record-high" headline. These commodities generally move together. I bought a small amount in part because I already own a chunk of CDE, a silver mining concern and some NEM which is an unhedged gold and silver miner.

The long term chart of silver is pretty crazy. What it means...I have no idea.



The last couple of years silver has been a much better trading vehicle than gold - which seemingly just drifts up. A couple of weeks ago I dumped my long-held gold position around $765. I dumped it for no good reason. Alright, I guess a "margin call" is as good a reason as any to liquidate.

So this silver trade allows me to somewhat ride this strong gold market without actually repurchasing the yellow metal.

This is one of the nuances that most people don't understand. There are usually numerous ways to place a particular bet. For example, one might be buying solar panel stocks as a proxy bet on higher oil. You could also short the Euro if you think gold is going to drop but are reluctant to sell your bullion. Also, these days bonds and stocks are moving oppositely intraday. I have been playing them off each other almost everyday - shorting bonds as a proxy for buying stocks and vice versa. The possibilities and examples are endless (and evolving).

One just has to watch the game to get a feel for these relationships. This is why I encourage all unsatisfied sports gamblers to open a futures account (Interactive Brokers) and watch oil and gold, stocks and bonds, wheat and coffee through all their upticks and downticks. It won't be more than a few months before they start to feel comfortable and literate with commodities and futures - stuff that probably sounds highly esoteric at the moment.

Now what would make me bail on this little silver trade?

As yet, I don't really know. I am not one of these chartists who draws astrologically-inspired lines on a graph and comes up with a price trigger to dump the trade.

If gold makes a sharp intraday move down and silver hangs tough, perhaps I will get out quickly, count my blessings, and look for a lower re-entry point.

If gold keeps climbing and silver just sits here, perhaps I will buy some more.

If my account takes a beating elsewhere, I may have to adjudge my silver and gold exposure sufficient (via NEM and CDE) and unwind this last marginal purchase. Likewise if I make some dough on other trades I'll probably increase my risk appetite for this one.

My overriding trading philosophy, for better or worse, is always to trade small when I am losing, and really ramp it up when I have the wind at my back. And I doubt that is any different than how y'all bet on football and card games.

I'll update y'all on this trade when something changes.

Ouch!!! Stock Market Pain

I must be getting wiser. Earlier in my career, I would have been killed on a day like today (Tuesday). Instead, I made some good money in this bludgeoning.

My three biggest long positions all got hammered:

GOOG down 16.16 (-3.48%)
CDE down .42 (-8.75%)
NEM down -2.76 (-5.86%)

But I was short a ton of the Nasdaq 100 futures and the QQQQ's (also PCCC down 1.80 or 10.06%)

The End-of-the-World trade did not fare well today. Though briefly positive, both oil and gold finished down and the long bond rallied. Thankfully, I didn't really have it on.

I did short the 30-year Treasury yesterday and significantly added to the position today so maybe I'll ease my way back into that fabled trade of mine.

Also, I covered most of my Nasdaq short today - way too soon of course. Today would have been an ideal day to be off golfing with no bids below the market. In violent panics like this, I have always gotten hurt. All it takes is a few innocent longs to bite you in the ass or in the case of option trading, a missed hedge or two.

Here's one example. Years ago, Dell dropped 2 points for seemingly no reason. So I bought an innocent 1,000 shares at $118. Well, between that purchase and the end of the trading day, the stock market decided to tank - much like it did today. Dell closed that day at $100. I lost 18k on 1,000 shares of Dell. That is probably the most points a trader has ever lost in a day in the history of that stock. Here's the scary part - I was proud of myself for not doubling up at any point.

I have pretty much stopped watching and reading financial news but today I had to hear the scuttlebutt - and was it depressing or what?

The Chinese market dropped 9% last night and is being named the chief market antagonist. But the thing is, it had just rallied 13% in the last week or so.

Also, the Nasdaq really just gave up its January gains. Why is everyone panicking?

I simply hate being the level-headed optimist!!!

UPDATE



If you enlarge that pic, you'll see Cramer insisted that the market would not bounce on Wednesday - at any point for that matter. Why would Cramer say something so stupid? It's stupid in the sense that there's a 50% chance he would be completely wrong.

As it stands, I went long the Nasdaq in my futures account just after the close yesterday. I woke up at 6am, saw all of the markets higher (Dow futures up 100pts) and sold my Nazzy futures twenty points higher and then went back to bed to snooze on my profits.

As I have said before, "Cramer Sucks".

The End-of-the-World Trade

Intro to Conspiracy Theory

Anyone who's traded the gold sector as much as I have is fluent in doom-and-gloom, End-of-the-World financial prognostications.

Skepticism towards government abounds in every populace and has in every period. Are the pols lying to us? Surreptiously lining their pockets? Abusing their power to suppress dissent? Are they manipulating the garb of reality through parades, rhetoric, or scapegoats?

Of course they are - ask any random person on the street. Open almost any history book.

Now ratcheting that cynicism up a notch it follows that government must be recklessly manipulating the financials to further its own devious interests.

What are those interests? And how are they doing this? Well the details of a conspiracy theory are inherently unimportant. Conspiracy theories fend off factual probing with a Hydra-headed resilience.

Oil companies manipulate prices up; later they fall. It couldn't be market forces moving the prices, the greedy oil execs decided to soak the little people. Then they got scared of Bill O'Reilly's populist handwringing and used their omnipotence to lower gas prices back down. Every price move or industry development has a knee-jerk cynical explanation. Supposedly we went to war in Iraq just to get oil. Since we have gotten that oil and increased world supply, prices, against all economic logic, have risen. And that brings the nutjobs back to their oil industry greed/manipulation lemma.

I am not kidding. The who, what, when, and how of a conspiracy theory are fluid to the point of irrelevance. The vaguer the accusation, the wider the net to cast.



In 1755 a horrific earthquake ravaged Lisbon, Portugal killing between 60,000 and 100,000 people. The absence of seismologists opened the door for any and all opportunistic speculators. The Church took occasion to blame it on immorality. Jean Jacque Rousseau blamed it on depravity of urban living. (If people didn't live all jammed together on 5 story buildings there'd have been much fewer casualties). Ignorance has always given license to conspiratorial conjecture.

Make no mistake, there will be a financial earthquake in your lifetime. We'll all have personal scapegoats lined up to blame: oil companies, Alan Greenspan, George Bush, Bin Laden, Wall Street, politicians, hedge funds, "greed", the national debt, China, outsourcing, illegal immigrants, the "rich", etc. Amid the crossfire of blame, genuine culpability will be quite beside the point.

So why all this talk of doomsday and conspiracy theories?

The reason I write this post is that my trading positions at the moment look like I am predicting the end of the world.

Long gold and silver.
Long oil.
Short the Nasdaq.
Short the 30 year bond.

Of course, trades are inherently short-term; conceivably I could cover and reverse them all before lunch. But if oil exploded and the dollar collapsed, I'd make a small fortune. Frighteningly, these scenarios are two key ingredients in any viable End-of-the-World prediction.

Now do realize I am not simply trading off a doomsday conspiracy theory; my positions are dictated by empirical price action and economic theory. Any legitimate economic textbook will tell you that cheap money (low interest rates) sows the seeds of inflation, which then erodes the currency. The only question is of timing.

Look at it this way, if the dollar lost value, our way of life would be turned upside down, and perhaps a shudder would be felt globally. Those dim ramifications demand we consider everything that could possibly cause the dollar to devalue.



Inflation of course is suspect numero uno. It can arise from the government simply printing too much currency; it could come from a sudden spike in prices (leaving aside for a moment the relationship between the two). Lastly, dollar weakness could arise from a fear of fiscal solvency, i.e. the national debt.

Oil is arguably the oxygen of the global economy. Jack its price up and Goldilocks won't long be able to breath. Almost every single necessity of life will cost more - at least theoretically. Ergo, rising oil must play a starring role in The End of the World.

The other co-star, previously alluded to, is your Federal Government. So how much money is it really printing? That's a question not exactly dominating your local news now is it? Here we are getting into more esoteric financial stuff that I admittedly don't fully understand such as the velocity of money, M1, M2, etc. What I do know is that the government owes lots of money and unfortunately for its creditors, the Feds are the ones who print it.

Should we just trust the slimeballs on this one?

I just did a google search for "growth of money supply" and found this nugget on the Federal Reserve's website.

In 2000, when the Humphrey-Hawkins legislation requiring the Fed to set target ranges for money supply growth expired, the Fed announced that it was no longer setting such targets, because money supply growth does not provide a useful benchmark for the conduct of monetary policy.

Our government is so compassionate...It doesn't want to confuse us, the fretful public. As is plain to see, tinfoil-hatted conspiracy theorists don't exactly have nothing to point to.

I am sure some people monitor the Fed's printing of greenbacks, but I think it's safe to say that it gets about 1,000,000th of the public scrutiny given to say the quality of cous cous at Guantanamo Bay.

So after the "trust us on money supply" policy piques your cynicism, next take a look at the Federal Reserve's interest rate machinations. At the slightest sign of weakness they drop rates to artificially revive the economy and buffet political incumbents. They arrogantly feel that such fine tuning steadies the ship. I disagree.

In the long run, the economy is going where it's going no matter what the Fed does. Long term interest rates (set by markets) and technological innovation trump the short term borrowing cost of money. The Fed's manipulations create large distortions which preclude the vastly more efficient free market from allocating capital. All the Fed really did in the last few years by lowering rates was encourage debt-laden consumers to borrow and spend more money. Sure Fed defenders can find GDP growth numbers or other convenient metrics that allegedly justify their "ship steadying" mission. But I say, look at havoc of the Nasdaq dropping 70% from its high. Did they really need to lower interest rates in the wake of Long Term Capital or the Asian financial crisis? Or later on after 9/11?

Note also they raised them in 1999 partly to entice people to not make a Y2K run on their banks. The criteria for their manipulations are unbounded.

Devil's Advocate - But wasn't Greenspan trying to deflate the Nasdaq bubble in 1999? Wasn't he doing the right thing?

You mean deflate a bubble that he arguably helped create (by lowering rates in 1998 under the guise of Asian woes)?

That would be like machine-gunning a guy and then wanting credit for calling an ambulance.

Okay, for the sake of argument, say they were correct to raise rates in 1999. Since the Nasdaq doubled anyway, from 2,500 to its 5,000 zenith, clearly they were too late to the rescue. This brings us to our present day analogue.

Right now, the Federal Reserve is literally praying that their recent rake hikes not only slow the economy, they are praying that a cooler economy will then a bite out of inflation. This may be the largest parlay bet in history.

Remember, a tightening Fed couldn't ground the dot-coms in 1999.

What if the economy slows but commodities march onward and upward?

Lowering rates will just aggravate the inflation. So what then, raise rates in the face of a breaking economy? That will never happen.



The Fed simply does not have a tool to crack open the stagflation nut - which is what we could be looking at if the Fed's parlay busts.

Congress could theoretically crack that nut BUT it has a record of making things worse.

Here's what it could do to stem inflation, strengthen the dollar, and invigorate the economy:

1) Lower taxes.
2) Start phasing out Medicare. Push HSAs.
3) Privatize Social Security.
4) Shrink the size of government. Deregulate more industry. Decentralize government schooling.
5) Attack hidden taxes on business like the tort lobby, ethanol mandates, etc.

Here's what they will most likely do:

1) Raise taxes on income, capital, and perhaps oil companies.
2) Expand Medicare (or leave it alone while demographics expand it).
3) Will do nothing positive with Social Security. They will means test "wealthy" people off of it. They will increase the cap beyond the first 90k of salaries. They will make 11 million illegal immigrants retroactively eligible for benefits - even though the "trust fund" is already underfunded and also ravaged by unfavorable demographics.
4) They will expand the size of government. Regulate more industry, e.g. hedge funds are up next. The socialists will keep pushing for nationalized healthcare.
5) They will add more hidden taxes on economic activity.

If you don't think econo-illiteracy pervades America from Joe Blow on the street, all the way through the highest political offices, then you haven't read enough of my blog. Any financial earthquake will be met with the crossfire of blame mentioned above but the ignorant finger-pointing will pale compared to the damage wrought by the political "solutions". Be sure to thank your local Congressman.

I am covering a lot of stuff here but this is no disjointed diatribe.

If the dollar is fundamentally in trouble, the only place to hide is in precious metals. Sure you could convert your dollars to euros, yen, or other currencies but then you're opening another can of worms - especially with the euro. The European Union is more concerned with global warming and world government than they are with economic vitality. The Japanese have their own problems as well, e.g. an inflexible banking system.

Devil's Advocate - So how does the dollar weaken if you don't see other currencies strengthening?

Finally DA, you ask a good question. I don't necessarily see the buck weakening versus other currencies - at least not to the extent of other goldbugs. My argument for dollar weakness focuses more on a loss of purchasing power from inflated commodity prices (and debt).



Gold is THE SAFE HAVEN from dollars, euros, and yen. While currencies have come and gone, the yellow metal has held value for 4,000 years.



Sure you could demonstrate how horrible of an investment gold has been over many time periods BUT I can always fire back my 4,000 year argument. How'd the dollar do during the Civil War? How'd the German mark fare with Hitler? Didn't Oscar Schindler use diamonds as a currency while fleeing for safety?

The conspiracy theories will never, ever go away. In fact, I think they will gain steam for the foreseeable future.

Some of these goldbugs are indefatigably nuts. They believe the government has sold all of the gold at Fort Knox. They believe you have to own gold coins instead of gold futures because banks will never be able to deliver your metal in the wake of a financial catastrophe. Others live in cabins with stockpiled food, firearms, and bomb shelters. As nutty as I am, I am not quite there yet.

There's so much more I could say on this topic but I am going to end it here for now.

Tax Shelter asked in advance for a "What if I am wrong?" consideration. I am sure he'll fine tune the question in the comment section but I'll give it a go now.

If I am wrong about these trades, I will lose some of my hard earned money. My positions are not very large but are quite levered in the sense it looks like one big End-of-the-World bet. Should oil drop, not only will I lose on that position, but it's likely that gold and silver dip as well. And of course stocks and bonds may rally some more.

I want to emphasize again that these are "trades" not investments. Aside from the 30 year Treasury, I have been both short and long gold, silver, and the Nasdaq more times than I could count just this year.

I am "wrong" every single day. Today I bought Apple too early. Yesterday I lost 7 points on Gold. I got run over shorting the Nasdaq in November. The game I play is not about being "right" all of the time or even 51% of the time. It's about cleaning up on your winners and having small losers. I don't like the term "diversification" - I much prefer "a basket approach". It really has taken me 10 years to learn how to trade smaller. As a fearless youth I swung a big bat on single positions and had to numb the losses with inebriation. Maybe that's why there are no trading firms in Boston, because bars won't sell you more than three drinks before cutting you off?

I am fully aware that my blog spouts a formidable negative vibe. I have the End-of-the-World trade on and of course I am short the housing market because I rent. When I say I don't believe in long term equity investing remember I am speaking for myself only and about the stock universe as I see it today. I have a hunch that Tax Shelter wants to know the long term bull arguments for stocks and perhaps real estate but I'll wait for him to clarify.

If the economy keeps roaring, interest rates stay low, and real estate starts ascending again, I will get hurt financially - no question about it.

But if I am right and play the right side of coming trends, not only will I earn some good money, but I will vault up the wealth ladder.

It's one thing to get rich when seemingly everybody else is, like in internet stocks or in real estate, but quite another to make bank while others are bleeding. Something like 69% of Americans own a house and at least 50% own stocks directly. I am not really that bearish on the stock market because its valuation is not that high. I am however very strongly bearish on housing and on the long bond because of their stratospheric prices.

Okay that's it. I am ending this post because the concept of me making money on this trade is just too depressing.

Maybe I'll renominate it as the schadenfruede trade...