Stocks And Weather

We cannot stop the rain, but knowing it is going to fall can prevent ourselves from getting drenched.” – ancient Chinese saying.

NOW: California will begin issuing IOU’s on February 5th, because it will be out of money on the 4th. Even the funds it has borrowed are will be gone then. New Jersey is in the same situation, as are many other states in our great nation. That’s their problem, you may be thinking? Well, it’s our problem too. Our government will have to bail them, meaning us. States with no money can’t pay unemployment benefits, state employee salaries, buy stuff that its citizens need to survive, etc. The house of cards continues to crumble, and we are no where close to any economic, real estate, or stock market bottom. Continue reading

They’re Afraid. We’re Not.

THEN: For those that are not students of the market as we are, consider what happened in the 1930’s after the Dow crashed on Black Monday in 1929. That day, the Dow fell from the Friday close of around 380 to around 190 by Monday’s close (one day loss of approximately 50%). Brokers and investors jumped from their windows to their deaths rather than face living in financial ruin. Had they waited six months, they would have enjoyed the rally that took the Dow from that 190 close to the WAVE B high near 300. That would have been the time to exit the market, count their dollars, and jump if they needed to. Following that rally into Spring 1930, the market entered WAVE C, which took the Dow from approximately 300 to the ultimate Depression Low of approximately 40 by the summer of 1932. The 1929 market crash didn’t cause the Great Depression! The decline from 300 to 40 over the following two years, along with the skyrocketing unemployment, and national mood plunge from mania (Roaring 20’s) to depression (actual Great Depression), created the retrenchment in risk assumption and sweeping conservatism that caused the largest contraction in history…until now.

Our point is that although there is a multi month rally due to begin in this time frame, it should be only the intervening up move between the two down waves (the first down wave is ending shortly, and the second down wave, like in 1930-1932, will be much worse). Therefore, we suggest humility, flexability, and gratitude while participating in the coming bounce. Continue reading

Hedges Gone Wild

Wow, Bank of America (BAC) is reporting that they need help to close their Merrill Lynch transaction that they stole from the public. Evidently, even though they got a sweetheart deal, they have lost additional money due to their “hedges going bad”. That is how gamblers in denial explain that they doubled up and lost more than they had in their bank account. You see, “hedge” is a term used to describe a situation with NO risk exposure. When we hedge, we “neutralize” risk exposure. So, if we are long gold in our account in America, and want to temporarily eliminate the risk of it falling and losing money, we short gold in England or Singapore. That offsetting short will add the same value if gold declines that we will lose in our American account. THAT IS A HEDGE!

Having lost money on a hedge means they made a bet and lost. Since we are paying for all these continued bets, it’d be nice if those playing with our money could find the integrity to tell us the truth about their actions. Especially since some of us actually know the game they’re playing. Continue reading