Wednesday, December 3, 2008


If you are watching the mainstream media then you must be hearing all of the bulls rattling around about how great the market has been acting and how we "MUST BE HEADED HIGHER". As I said in an earlier post, a lot of the smart money is one the sidelines. I am considering selling my SDS, even though I believe that the market will ultimately head lower. One of the things that I have learned (and have paid the tuition) is that you MUST follow money management principles. I will watch carefully tomorrow, but won't take much more pain with the SDS.

I am certainly not in the camp that says "stocks are cheap" as many of them are going to get cheaper. I am hearing more people make mention of the fact that liquidity is increasing. I believe that when the realization hits we are going to see a much weaker dollar and inflation. For those of you that email me the closing price of oil everyday that it falls---understand that I have acknowledged that we are seeing SHORT TERM PRICE DEFLATION. I have further said that I KNOW that I cannot call the bottom. I am trying to slowly scale into positions that I believe are going to work. I have been open about the hammering that I have taken in UNG. Is natural gas going to turn soon? I do not know for sure, but given what I have learned about inflation, liquidity, currencies, and commodities---I believe that it will in fact turn at some point. It will ultimately revert to a supply and demand equilibrium and I believe that demand will outgrow supply. I have put a small part of the position that I intend to play (about 25% to this point) and will add as it picks up momentum. Until then I just have to grin and bear the downturn.

Another point for you DEFLATIONERS--Did you see that we saw increased productivity and wage pressure today? How did that happen. You deflationers believe that we can't have inflation if unemployment is rising at such rapid rates. So make the comment below and tell me why we are under wage pressure if deflation is the main problem right now. You cannot tell me that we are in any type of long term deflationary scenario.

I always wanted to be a perfect market timer and it caused me to lose a lot of money. The first time I spoke to Jim Rogers he said he was a terrible market timer. As I listened to other interviews of him and other successful investors, I realized that I needed to match my risk tolerance and my ability to preserve the capital that I had. It sounds so simple, but I made many a mistake holding a stock because I was looking my break even point or my account balance instead of valuing the stock. I have learned (and am still learning) to adjust my position size according to how much pain I believe that I could tolerate and still own that particular security. I love to buy a bunch and watch it run. But what is fun and what is smart money management are not often the same. I have learned that THE MOST FUN is to be smart and MAKE THE MONEY. Not swing for the fences and miss on 3 out of 4.

Enough rambling--back to this economy. Someone please explain to me how this talk of lowering mortgage rates at 4.5% is going to do anything but cause inflation. I said last night that the dollar is of utmost importance, and I stick by that statement. For those of you that have not heard my interview with Michael Panzner from back in the summer, I will post it again. He said that he thought gold was the place to be, but that he thought it was going lower (AGAIN THIS INTERVIEW WAS DONE BACK IN THE SUMMER). The point is that a lot of the people, such as Schiff, Panzner, and Rogers that have been right---have not tried to call the exact top. They have seen the factors and called the right outcome. That is exactly what I am trying to do here. I am not rushing out to buy all of the gold and oil that I can get my hands on TODAY. But I am prepared to invest around my long term thesis.



dacian said...


First time here. I think we experiment deflation right now, but I respect your point.

Here are 4 aspects:

1. Why deflation with all the money pumped in, low mortgage rates, etc.? Well, if you take the definition of deflation (or inflation btw), it doesn't mention prices (or wages). It says it's a contraction of money supply and credit. So no prices talk here; you can have lower prices in deflation as an effect of that, or higher prices when inflation is present. Today the problem is some investors (and individuals) need huge amounts of money to pay back debt. FED is pumping, but those money aren;t finding yet their way into the economy and people/investors pockets. How that goes? Through credit. As credit is frozen and nobody is lending/borrowing (there is no reason for that as recession is here and we have overcapacity all over), here you go. All the money the FED is pumping aren't moving.

2. I don't know about natural gas, but I have heard about oil that it can't get below 30$ since that's today production costs (or something similar). So for oil, at 43$, it might be that we're not that far from bottom (another 20% down is still possible); but who knows these days :)

3. Gold might actually do well in deflation (especially physical gold). That's not sure though. Compared to 6 months ago, an ounce of gold buys twice as much oil and more DJIA units. There are still people who think at gold as money, and money does well in deflation (included paper dollars).

4. Watch the 10-year treasuries. They are pointing towards deflation.


Anonymous said...

dacian very good points. seems like you may be on the same page as Stock Shotz with timing as the only difference.