Saturday, December 20, 2008


I have gotten a lot of emails/comments telling me that I am way early on my inflation thesis and that means that I AM WRONG. That is simply not true. Being early means being wrong when you are TRADING. Being early when investing means you admit THAT YOU CAN'T CALL THE EXACT BOTTOM. I both trade and invest. I have gotten my butt hammered investing lately. Buy and hold has had a rough year---even been considered DEAD. But as a 40 year old, I have plenty of time to let my investing and inflation theory to play out.

I am invested in natural gas and have an investment position in Freeport McMoran (FCX) which I also trade around. We are hearing a lot of talking heads (most notably Dennis Gartman) saying that the gold bugs have had everything they wanted this year and gold is still making lower highs and lower lows. In the short run, I do not disagree that gold may see some downside. However over the long haul, I cannot see how we are going to see anything but inflation and I think this is a great time to position myself (with money that can afford to wait). It may be the best opportunity of my lifetime and I am hoping to cash in.

Many are arguing that we are heading for a great depression. I can't argue that things don't look bad from an economic standpoint, but we are seeing the world's governments stand ready to take unprecedented actions to get global growth going again. Why am I so convinced that natural gas is getting close to the bottom? Because it is getting close to the price where it is selling for less than the cost of extracting it from the ground. I understand the counter arguments---that these companies must have the cash flows to continue operations so they will sell at a loss. I agree---again over the short term. Production will slow and exploration will dry up. When global growth gets going again, we will see demand outpace supply. It is much quicker to take supply offline than it is to put it back online.

Many keep arguing that we are seeing a vast amount of wealth evaporate and that will keep inflation at bay for a very long time. Madoff didn't help things as this most recent scandal will further the "less wealth" idea. Many are also arguing that the dollar is still the world's reserve currency and the Euro is going to get hit hard in the near future. My focus is on China. China is going to keep growing has more power than ever to cause inflation. I did an interview this summer with Dr. Reed Holden author of the book PRICING WITH CONFIDENCE. Dr. Holden talked about how "Amercian Goods" are really perceived as having "value" abroad. When our high quality products become cheaper---those abroad will consume more of them. It sounds really simple, but we saw Europe help our economy when the dollar initially fell against the Euro. Many referred to that as the last "leg" holding up our earnings here at home. How does all of this tie back to my China focus? I think that we will see China buy more of our goods than ever before as the dollar falls. That will give our economy a bigger kick start than most are expecting.

I have a new theory about trading and investing. I am calling it my BUM TRADING THEORY. Quite simply we know that our economy is driven 70% by the consumer. We have been overwhelmed by information from the mainstream media talking about the "bums". The bums that aren't paying their mortgages, the bums that aren't out buying all of their consumer goods on credit, the bums that can't finance their new car before they pay off the old one. The message that the mainstream media would have you believe is that we are all bums. All of us are going belly up and deflation is going to consume us all!!!!!!! IT IS JUST NOT SO!! There are many that have lived within their means and are still paying their mortgages, still buying Christmas gifts for their friends and family, still dining out and much more. So while we have seen the "bums" definitely impact the economy on the downside recently, the productive are still out there and will benefit when the tide turns. So I may TRADE THE BUMS--AND INVEST WITH THE PRODUCTIVE. I am investing in natural gas because I believe that the productive are going to keep heating their homes and using electricity. I don't believe that the productive will allow us to be consumed by deflation. This theory may sound very silly, but it is why I believe that oil, natural gas, and gold are good plays for the long term. I am INVESTING THAT THESIS.



Anonymous said...

You should pay more attention to global politics, rather than fundamentals or technicals, right now. Follow all of these. Understand that world socialist government is in the works, and that the collapse of the US and its currency is necessary to pave way for the New World Order. Carroll Quiqley (among others) has been detailing this information for about 40 years. Follow Ron Paul -- his prediction rate is also quite high.

Stock Shotz said...

I disagree with your assessment of Dr. Paul's prediction. Dr. Paul has been warning of inflation due to the Federal Reserve pumping money into the economy. That is central to my thesis. If you really believe that the U.S. dollar is headed for collapse, why would you not buy commodities?