Thursday, January 1, 2009


Will this be another down year? Will we rally as credit improves? Will Americans increasing their savings rate substantially? I wish I could answer all of those questions. I think this will be a year where being quick will be much better than being patient. I believe that the unemployment numbers (bad, but not as bad as expected) point to a more inflationary scenario than to a deflationary one. Why? Because the current theory for deflation is basically hinged on employment--or lack thereof. Why is it hinged on unemployment? Because better employment will have higher bearing on the velocity of money than most have forecast. We know that the money supply has increased (I disagree that it has decreased due to wealth destruction) and if the velocity of money increases---we will be headed to a much improved economy--perhaps even an inflationary one.

I wrote earlier in the week a little about p/e and how difficult is was to truly assess the p/e of a company as it has been difficult to ascertain what the earnings of companies will be in this environment. Dare I say it, but this year could well hinge on the effectiveness of the upcoming stimulus plan(s). I have been on the side of free markets and letting them work and have not changed my position. I believe that the best thing for the market would be to go through a protracted recession and as Jim Rogers would say "Start over from a sound base. Since we know that we are not going to let the market work with no bailouts/handouts etc we will not discuss that scenario any further. We know we ARE going to get some form of stimulus and for this year the question will be whether or not it is effective in returning people to their jobs. Many would argue that this crisis began with housing and will not end until housing stabilizes. While I would not argue that point--I believe that employment is a huge component of whether we see housing begin to stabilize. If employment stabilizes our consumer will very soon try to return to the model of its former self.

Many people are saying that we have all learned our lesson and are going to start saving like we just avoided bankruptcy. This is simply not the case. Many of the individuals that were the highest in credit card debt will get relief through the stimulus--either in the form of a rebate check or reduced principle etc. They will still be out purchasing things every chance they get. Yes some of us will save---but the ones with the propensity to save were not the ones that started this credit crisis in the first place. I have drawn criticism for making this point but it will ring true. Yes there were some people that were just unfortunate and lost their jobs. But most of this crisis was caused by those that just took all of the credit they could possibly get---and my friends they will do it again if given the chance.

My point is that if unemployment starts to decline and the economy begins to "perk up" then we are going to see the banks resume lending (perhaps have some assets that need to be written up on their balance sheets). And at that point we will be in jeopardy of the velocity of money rapidly growing.

Now if the government bailouts do not kick start the economy we could head into a deflationary cycle. No doubt that if we throw a huge stimulus at this economy and it does not work---we will throw more. That is an absolute guarantee. I am either clear as mud or I sound like I am trying to hedge my bets. I am not trying to hedge---my point is that at some point we are going to have enough stimulus to get things going again. And when it does, we will see inflation.

Let me ask this question. Were many hedge funds allocating money to the commodities markets back in the summer when oil prices were high? You bet they were. Will they do it again? You bet. I believe that we will see more institutions than ever before allocate dollars to commodities as we begin this leg of the economic cycle.

I like SWS here. I like this company and in all fairness they have made a huge run lately--I bought them in this area and held them through the recent declines. My target on this one is $24.50.

ICOC had a nice run yesterday and sadly enough is still way below my entry point. I still like the company and think that they will benefit from the weaker dollar. It may take some time, but I think this one will double. It is not for the faint of heart though. Should Europe stay in a recession for a long time---it could hurt the stock.

I had liked Seagate STX and in all honesty was dumb enough to ride this stock all the way down from 25. This was my absolute failure at money management for the year. I really liked the company and thought I could fight the market and was SO WRONG. I talk often about tuition to the game of trading and I paid my tuition to learn a money management lesson that I vow never to repeat. This one I think I can master in the future because it hurt bad and I felt SO STUPID and asleep at the wheel when the stock landed at 4.

Personally I am taking 2 approaches for this year. One approach is to invest my inflation thesis. I have taken small percentages already in some select positions and will increase those positions as I see my thesis begin to unfold in my direction.
I am allocating 25% of my available funds to this part of my trading.

The second approach will be to take advantage of volatility and trade. I will be looking at taking advantage of some of the "double direction" ETFs. I have refined my plan with respect to short term trading (as I lost money last year) and until the markets stabilize will define "short-term trades" as a much shorter time horizon than I did last year. I had taken the mentality during the volatility that I would have my stops be "close" in other words if my stop was $25 I would not sell if it hit $24 during the day---I would wait and sell the next day if it closed below $25. It started out as a decent idea, but rapidly cost me much more than I was willing to lose on trades.

I could not end the year without thanking all of our visitors (whether you agree with our views or not--we know we were wrong at points last year and have sense enough to know that we will make mistakes in the coming year). We just hope to learn from our mistakes and get better each time.

I also wanted to take time to list each of the individuals that appeared on our show last year. We were so fortunate last year as we interviewed Jim Rogers, Peter Schiff, Charles Payne, Walter "John" Williams, Jill Schlesinger, Pat Dorsey, Ryan Krueger, Dr. Danielle Babb, Price Headley, Kevin Kerr, Jerry Bowyer, Dianne Swonk, Donald Luskin, Tracey Byrnes, Kendra Todd, Dr. Thomas Barnett, Dr. Reed Holden, Timothy Sykes, Hitha Prabhakar, Dr. Jim Mirabella, Dr. Alex Lazo, Carley Garner, Michael Panzner, Jerry Taylor, Dr. Christian Weller, MeMe Roth, David Duval, Anya Kamenetz, Toni Hansen, Wes Ball, Margaret Heffernen, Dr. Richard Murphy, Laura Ries, and Denise Shull. I wanted to list each by name as they were all gracious to take time out of their busy schedules to speak with us.

I made many new friends during this process and hope to do the same again in 2009. It was truly an honor for this "country boy" to have the opportunity to speak with and try to learn from these individuals. To every one I offer my humble and sincere THANK YOU for taking time to visit with us.