HEDGING FOR ARMADEGGON

[Brant Gaede]

I will not post further on this thread except in response to a post.

--Brant

[Michael Stuart Kelly]

Brant,

I did mean up if that was in doubt. I would have used a minus sign if I meant down. (If this is not is what you thought I thought, then just ignore this post.)

Michael

[Michael Stuart Kelly]

Brant,

As a quirky comment on this subject, here is how Brazil deals with all this:

Brazilian stock market suspended as index plunges

Que saudades!...

Michael

[Brant Gaede]

We aren't half-way through this shit. Things will keep getting worse until they get to worst where there'll stay for a while. But that doesn't have to be anyone's particular life, even now.

--Brant

[algernonsidney]

I've come to the conclusion that it doesn't matter how bad things might seem, they can always get worse. Badness and goodness are both infinite and limitless.

How do you draw your conclusions on this, Brant?

I don't really care how the market generally does. I do care about how my stocks are doing. Thanks to the incompetence of Doug Casey, I have done worse in 2008.

[Brant Gaede]

I've come to the conclusion that it doesn't matter how bad things might seem, they can always get worse. Badness and goodness are both infinite and limitless.

How do you draw your conclusions on this, Brant?

I don't really care how the market generally does. I do care about how my stocks are doing. Thanks to the incompetence of Doug Casey, I have done worse in 2008.

I haven't paid any attention to Doug in many years.

Real-estate toxicity bundled into many derivative financial instruments are roiling equity markets world-wide through massive deleveraging caused by bad investments. It's going to get worse before it gets better. I'm referring mostly to the economy now, but suspect markets themselves still have tremendous downside. We need to treasure cash. Gold can be purchased using dollar-cost averaging.

--Brant

[algernonsidney]

What's frustrating about Casey is that his general predictions seem to have been correct. It's just his specific stock picks that have been complete losers.

[Brant Gaede]

I changed my mind and will now continue posting on this thread even if not in response to another post.

--Brant

[Brant Gaede]

The financial meltdown is continuing and will now impact Europe because of Western European exposure to Eastern European and South American debt. The UK is exposed to Asia.

The strain this will put on the Euro may deflate and/or destroy the currency because of the unstable political situation it rests on. If I lived in Europe I'd avoid debt at all costs--this means bonds, too. If you own bonds you are a creditor and you don't want entities or people owing you money. I'd put my savings into yen, the US dollar, the Canadian dollar and gold. Only the last long-term. The US dollar is the weakest going forward. Gold may go down significantly even from here before a long-term reversal. Gold should be purchased using dollar--or what-have-you--cost-averaging. Over the next five years I see gold with a downside potential to $500 and an unside potential to $4000/ounce. Please note the operative word above, "savings." Please also note the diversification. If you have money you want to invest that's another ball of wax. Also, these days all investment is speculation. Over time you can somewhat corrupt the diversification by using some of those saved currencies to finance your gold purchases. The more time that passes the more valuable gold will be, at least potentially. The coming destruction of public debt absolutely demands inflation. The carryover into the private sector will be the destruction of mortgage and even credit card dedbt assuming the debtors can hang on and not drown. Debt sustains the value of fiat currencies and to the extent debt is destroyed so too will be the currencies. The short-term spector of price deflation means you can move too soon by indulging in debt with the expectation it will be destroyed. Being long-term right can mean being short-term dead.

Another form of savings is food in the house to feed you and yours for several months. Be one less panicked shopper in your local supermarket if it ever comes to that. Don't forget the toilet paper and bottled water. Diabetic supplies too. How long will it take to strip your store of food essentials? Two hours. Then they'll come back for the soy sauce. Don't get in a tug-of-war for the last can of corned beef hash. Buy it now when on sale. I got a can of Safeway's brand yesterday for I suspect it's actually the same as Hormel. Tomorrow I'm going to find out if it's edible.

Don't die in a food riot for a can of Spam!

Stock prices have improved in this last week because of Fed rate cut, expectation of an Obama win, deleveraging slow-down and wishful thinking. This means if Obama wins the markets may rally a little then head south. If McCain wins, I don't know. Regardless, the stock market will be pure crap on the long side this coming year. I'm hoping for a big rally so I can sell it short.

--Brant

[Brant Gaede]

Bear Market target for the S&P 500: 1/2 of what it is now. That is, about 480.

How long to get there? Four more years.

What if we get there in two years? Expect S&P 500 at 300.

When is the next Bull Market? 10 years from now. Buy in five, carefully. Look for super-super cheap.

Why so long and so deep? Tremendous debt destruction takes time. We are entering a consumer led depression. The big Federal bailout is going to save financial instutions that should have failed. There the money just sits to bolster balance sheets or is used to buy other financials on the cheap. No consumer relief.

How much will my home be worth? If you can sell it, less and less. If you can't but don't need to, inflation will eventually rescue you, especially if you aren't already in serious negative equity. An afordable fixed-rate mortgage will be better than no mortgage at all in most cases. Inflation will destroy your debt. Is your job at risk? Then it's not affordable. Two incomes needed to pay for it? Not affordable. Adjustable rate mortgage? Not affordable. Etc.

The stock market rallied last week. Shouldn't I buy stocks? End of the month BS and short squeeze. Monday will be a good time to SELL stocks, but likely last Friday, yesterday, would have been better. Note, I did not say "sell short." Obama isn't worth more than 500 unsustainable DOW points.

Gold? Right now the trend seems to be down. I own some GLD just in case there is a horrible geo-political event. I am thinking of buying some physical gold. While gross inflation will out, price deflation in physical assets can go on for a while as people scramble for paper money to pay their debts.

The big grind-down is about to begin. Ugly, painful and slow. Likely less volatility. Hard to top what happened last month.

--Brant

Edited November 2, 2008 by Brant Gaede

[Brant Gaede]

Just a note and a warning: we are a long, long way from a Bear Market bottom. Equity prices generally could stop going down soon--I greatly doubt that--but the time factor is so far out in front of us it's foolish to be invested now. We are being drawn inexorably into a world-wide recession that could become a depression--the worst economic collapse since the 1930s. Governments are doing all the wrong things. They are trying to fight the business cycle with debt. Trillions of dollars worth, money nobody has. They can't get the money from taxes and the market will be poor for bonds, so they'll eventually just have to run the printing presses causing gross inflations. Because so much of this bailout money has been put into banks where it just sits, dollars could paradoxically be in short supply for a while and there could be short-term price deflation. Even the price of gold can come down as people sell gold to get cash to buy shelter, clothes and food. The downside potential for gold is $500/ounce and the upside is $10,000 in 2009. Both price extremes assume different types of gross disasters, the latter worse than the former. Once inflation takes hold, probably in the context of a pseudo-economic recovery, it will simply ramp and keep ramping. What will be the likely price of gold a year from now? $1000/ounce. Ten years from now? $15,000. But the ten years from now dollars won't be today's dollars. To achieve wealth investing will eventually involve buying equities or creating a business. The problem is the stock market could easily go down a third or a half more in the coming year. A new business now may draw no customers to speak of and the inflation will so distort inventories businesses that need them will find rational economic calculation almost impossible.

--Brant

[Michael Stuart Kelly]

They can't get the money from taxes and the market will be poor for bonds, so they'll eventually just have to run the printing presses causing gross inflations.

Brant,

This is my understanding. But from what I saw in Brazil, I have one observation.

What do you think those in charge will do when it dawns on them that they don't really need the printing press or the Fed, but instead that bits and bytes in a computer serve really well for issuing new money?

I can tell you what they'll do. They will start issuing "official indexes" for different economic indicators.

Notice the plural. When the government needs money, they will simply "readjust" one index while leaving the others the same. After a while, they will just "readjust" all of them except the ones that pertain to the middle class and poor. That is because they will have pegged giveaway benefits to those indexes, but this will not take too long to become an economic club to punish people (by decreeing that certain contracts use those indexes).

This process causes an inflation like you wouldn't believe. Hold onto your hat. If this thing is going where I think it will, or at least where it very plausibly can go, I don't believe Obama will have a chance in hell at reelection. If he listens too much to his left-wing advisers, this inflation can set in quickly and, in such a scenario, I believe he will run a strong risk of being impeached.

Michael

[Brant Gaede]

They can't get the money from taxes and the market will be poor for bonds, so they'll eventually just have to run the printing presses causing gross inflations.

Brant,

This is my understanding. But from what I saw in Brazil, I have one observation.

What do you think those in charge will do when it dawns on them that they don't really need the printing press or the Fed, but instead that bits and bytes in a computer serve really well for issuing new money?

I can tell you what they'll do. They will start issuing "official indexes" for different economic indicators.

Notice the plural. When the government needs money, they will simply "readjust" one index while leaving the others the same. After a while, they will just "readjust" all of them except the ones that pertain to the middle class and poor. That is because they will have pegged giveaway benefits to those indexes, but this will not take too long to become an economic club to punish people (by decreeing that certain contracts use those indexes).

This process causes an inflation like you wouldn't believe. Hold onto your hat. If this thing is going where I think it will, or at least where it very plausibly can go, I don't believe Obama will have a chance in hell at reelection. If he listens too much to his left-wing advisers, this inflation can set in quickly and, in such a scenario, I believe he will run a strong risk of being impeached.

Michael

I don't understand the "indexes" you are referring to, but they sound like a smokescreen.

--Brant

[Brant Gaede]

I'm sorry to say that the poor way the stock market is behaving and my continuous research is only making me more pessimistic. I'm now thinking of an S&P 500 at 300-400 and housing prices cut in half from here over the next two years. Also, an economic depression. Next year job loses will ramp. Innumerable good companies and bad ones will fold. The damage that Wall Street investment firms did over the years by their packaging and reselling phony and ginned up real estate assets is incalculable and ongoing. Every substantial thing the government has done before and now is wrong and makes just about everything worse. Gigantic amounts of future wealth are being pumped into a financial sewer. In less than two months Hank Paulson has done ten to 20 times the damage as 9/11--and that's on top of the problems he was trying to address. Alan Greenspan could have prevented a lot of this by taking away the punch bowl instead of adding to it. He didn't.

--Brant

[Backlighting]

Those involved or looking to get involved in the stock market might want to check out Phils Gang. He advocates capitalism, follows the money going in and out of sectors and stocks. His members are reportedly up 25-30% for the year.

He has a daily radio show on AM, commenting on the current rush to socialism in addition to market evaluation and recommendations..

Web site is www.philsgang.com for AM airing schedule. I also like his sense of humor.

[BaalChatzaf]

This process causes an inflation like you wouldn't believe. Hold onto your hat. If this thing is going where I think it will, or at least where it very plausibly can go, I don't believe Obama will have a chance in hell at reelection. If he listens too much to his left-wing advisers, this inflation can set in quickly and, in such a scenario, I believe he will run a strong risk of being impeached.

Michael

Not in the first two years. The Democrats own the House, where Bills of Impeachment are made. And even if he were impeached, there is very little chance he would be convicted and removed from office. No POTUS in our history has been removed from office. The closest to that was the resignation of Richard M. (I am not a crook) Nixon.

Ba'al Chatzaf

[Brant Gaede]

The stunning reversal in equity markets today should not be taken as an invitation to go out and buy stocks. Anyone of a mind to do that might want to wait until January after hedge-fund redemptions to pay off investors are done for the year. This is not me saying, however, that these markets won't do some ramping up regardless, only that the risk/reward calculation doesn't look good. The world appears to be moving toward a depression that might even challenge the Great Depression in its severity. The massive deleveraging of financial instruments, many of them near worthless, continues. This deleveraging is like a fuse burning down to explode economies everywhere. Short-term, the US housing market might almost completely lock down this coming year, with a million additional homes becoming available for sale and lack of credit-worthy buyers in the context of ever greater unemployment. Legitimate sellers thinking their homes are worth a Zillow appraisal will continue to compete with foreclosures that can't find buyers, unlike right now, 1/4 to 1/3 below Zillow.

--Brant

[Brant Gaede]

The people in Washington who are trying to fix things hardly know what they are doing and are now locked into doing what they have been doing. Stand aside and let the nonsense blow by. Equity markets are hardly forming a base although retrospectively it may appear so. If the DOW goes up 1000 points it is done with that up stuff for a long while. It may go down 1000 to 2000 from here in as little as two days and stay down. Hedge funds are still cashing in so their clients can cash out. If this redemption crap extends to investors in mutual funds and retirement accounts the bottom can fall out. It is for this reason it is dangerous now to buy cheap stocks of great companies. General Electric is not a great company. It used to be before Jack Welch. It is being exposed as a bank. Soon its stock will sell for single digits.

--Brant

Edited November 19, 2008 by Brant Gaede

[Brant Gaede]

20 minutes to the market close and the S&P is at 768. Much lower and it could be a lot lower. It will eventually, we just don't know when. Oil is now below $50 which means down nearly 2/3rds from its all time high last summer.This is really screwing Putin and Chavez and any significant oil-producing-exporting country. The fools and know-nothings of Washington have failed to save the banks while succeeding in throwing away gobs and gobs of money. Their stock prices are collapsing every day. General Electric has been exposed as a bad bank dressed up as an industrial conglomerate staggering under debt that can be hardly be serviced in a severe recession and a dividend that will have to be cut as it goes begging for money. The big three auto-makers are all but gone. They can't be saved. The fools are only talking about life support. What these auto companies need is credible federal assurance that they are safe to lend money to in bankruptcy so they can stay in business in chapter 11. Unionization (Wagner Act) has finally ruined the native American auto industry. Now the UAW will be ruined.

3 minutes to go and the S&P is 748. This is the typical late-day sell off getting worse and worse. This average is now at an 11 1/2 year low. Adjust for inflation for that super-staggering effect. Scared investors are fleeing stocks into short-term Treasuries paying virtually no interest. It will be interesting to see how scared investors will be to hold equities over the weekend.

I wish I had gone short right after the election, but I never got that bounce I expected. That bounce happened just before the election and election-day. I didn't expect this gross and continuing carnage. Not this soon, this fast, this thorough. In this information age time is on fast forward.

Close: S&P 500 752.44. Support broken.

--Brant

[BaalChatzaf]

20 minutes to the market close and the S&P is at 768. Much lower and it could be a lot lower. It will eventually, we just don't know when. Oil is now below $50 which means down nearly 2/3rds from its all time high last summer.This is really screwing Putin and Chavez and any significant oil-producing-exporting country. The fools and know-nothings of Washington have failed to save the banks while succeeding in throwing away gobs and gobs of money. Their stock prices are collapsing every day. General Electric has been exposed as a bad bank dressed up as an industrial conglomerate staggering under debt that can be hardly be serviced in a severe recession and a dividend that will have to be cut as it goes begging for money. The big three auto-makers are all but gone. They can't be saved. The fools are only talking about life support. What these auto companies need is credible federal assurance that they are safe to lend money to in bankruptcy so they can stay in business in chapter 11. Unionization (Wagner Act) has finally ruined the native American auto industry. Now the UAW will be ruined.

3 minutes to go and the S&P is 748. This is the typical late-day sell off getting worse and worse. This average is now at an 11 1/2 year low. Adjust for inflation for that super-staggering effect. Scared investors are fleeing stocks into short-term Treasuries paying virtually no interest. It will be interesting to see how scared investors will be to hold equities over the weekend.

I wish I had gone short right after the election, but I never got that bounce I expected. That bounce happened just before the election and election-day. I didn't expect this gross and continuing carnage. Not this soon, this fast, this thorough. In this information age time is on fast forward.

Close: S&P 500 752.44. Support broken.

--

The House of Cards sure does collapse, does it not? I hope when we bottom out we can rebuild more wisely than before.

The interesting thing as that no matter where we bottom the physical capital is there and the intellectual capital (skills, knowledge etc) is there. All that differs are expectations, hopes and attitudes. This gives us a lot to work with. Maybe the next time we will be like the wise little pig who built his house out of brick and not out of straw or sticks.

I don't know how you are reading all of this. One could see disaster. One could see pain and trouble. I see opportunity. The people who came to this land at first had only the clothes on their backs, a few tools and what was in their heads. We have considerably more. Given the right way of thinking we can build it better the next time.

Ba'al Chatzaf

[syrakusos]

The people who came to this land at first had only the clothes on their backs, a few tools and what was in their heads.

Most of them died.

The great waves of immigration enjoyed a nation in existence. Living in New Mexico, I did some research for a class I never took on Southwest History. After the failed revolutions of 1848, streams of European intellectuals came here, many of them Jewish and with them, many merchants, many of them Jewish. The year 1848 was also the embarrassing war against Mexico. The opening of the Santa Fe Trail brought new life to "the Spanish Borderland Frontier." The older settlers called the Masonic Temple where Protestants and Jews rubbed elbows, "the Anglo church." However, as the Ron Howard film The Missing -- based on John Ford's The Searchers -- makes (and I say this with full focus) PAINFULLY clear, the frontier was romantic only if you were not on it.

All four of my grandparents were immigrants. I had one uncle born on the other side. They had it easy compared to "the people who first came to this land..."

[Brant Gaede]

Soon will come end of year tax-loss selling. It's going to be horrendous. In January we'll just stagger around with less volatility. This unfolding disaster, which put Obama next in line to live in the White House will both constrain him and restrain him. He really doesn't know what to do and except maybe for Paul Volker, is not surrounded by people who do. If he plays chopsticks we may get some breathing room, but no relief from eventual gigantic but not runaway inflation. Warren Buffett is being exposed for not knowing enough to transition from a debt driven equity bull market to one that implodes. Inflation will probably bail him out of those ten-year puts he sold on the S&P 500, but he sure put capital to work much too soon when he should have been selling his stock positions and more closely minding the insurance store. General Electric will be lucky to avoid bankruptcy although I expect Jack Welch to retain more of his reputation than Alan Greenspan for Jack quit sooner. If General Motors fails bankruptcy because the Federal government doesn't guarantee that it is safe to lend it money, we'll have almost instant depression. If the government tries to keep the Big Three out of bankruptcy by shovelling in money, those companies will turn into welfare jokes turning out green PC shit while real car manufacturers eat their lunch.

--Brant

[Brant Gaede]

It's possible investing professionals will cause a year-end rally trying to goose or better their overall results for 2008 and keep their jobs. There is a lot of idle money out there for that. They may also be delusional--that is, they may be thinking stimulus packages are going to save the economy. Unfortunately, in 2009 there will be a great additional wave of residential properties walked away from by folks unwilling to make payments. Many are living in these homes right now effectively rent free. Many more will join them. It takes time to pry these deadbeats out. Foreclosures will flood the real estate market. The business cycle will continue its downward swing.

In three days the DOW is up 967 points. Because of Thanksgiving, it is unlikely anything dramatic will happen before next week. To the end of the year I'd say the DOW might go up as much as 2000 or down 1000. What we should find out next week is whether what we have just had up is more than end of month window dressing.

The dollar is showing signs of weakening and gold has gone up nicely. The premium is too high to buy physical gold now, but the ETF GLD is available as a substitute. You buy this with the idea you are going to hold it for 5-10 years. It is both insurance and savings. When the premium of a bullion coin drops from 10-12% to around 5% that'd be the time to buy, all else being equal. Don't buy all at once. Scale in. Use dollar-cost averaging. If I wanted 10% gold in my portfolio and had none right now, I'd go out and buy it outright. I'm afraid things will begin to accelerate inflation-wise and that scaling in now will leave one pretty much high and dry. One has to be willing to let the monetary value of this investment contract without selling it out. Note, I am not suggesting gold stocks. Some of the big ones could outperform gold by several factors, but be careful; many can go bust regardless.

So the tax-loss selling may not be so bad for equity in December because everybody is now getting those good vibes coming out of Washington. These vibes won't last; they never do even with correct policies.

--Brant

long GLD

Edited November 25, 2008 by Brant Gaede

[Brant Gaede]

Treasury Notes are so much in demand by hedge funds who want to be safely in cash, this includes foreigners who don't want their own currencies, that their price has gone way up and the interest way down. If you own 10, 20 and 30 year Treasuries now might be a good time to sell even though they might still go higher, because when these big boys want actual dollars to put to work in investments and speculations they'll dump these bonds and their prices will collapse. I wouldn't even own 5 year Treasuries here. If you have say a billion dollars and you want temporary safety there isn't a bank in the world you'd rationally entrust that money to. You go buy Treasuries. If you only have 250,000 dollars you can put it in the bank and get FDIC protection. I don't think there is a great hurry to get out completely but I'd start selling some right away. There is so much BS coming out of Washington now equity and commodity markets will stay unsettled.

Smart-but-ignorant-of-the-business-cycle people controlling a lot of money will eventually put it to use for a huge snap-back rally in these markets. Then they will learn like Mr. Coyote that what they are standing on is air. In 2000 the Nasdaq collapsed 1/3 in a matter of a few trading days. It recovered some over the summer. Then there was the horrible 2-year grind down. Greenspan kept lowering interest rates but the new Bull Market didn't start until the fall of 2002 to the late winter or early spring of 2003. It's going to take a lot longer this time. Love your dollar, gold and Japanese yen. Love your six-month food supply. Love your vicious guard dog and your good neighbors. Love your guns and know how to use them and use them legally.

--Brant

fear mongerer

Edited December 5, 2008 by Brant Gaede

[Brant Gaede]

Anyone having any business with E*Trade should transfer it in its entirety to another firm ASAP. The company is on very shaky ground and because of recent publicity many investors will start doing just that on Monday.

On another matter, the Big Three American automobile manufacturers are probably incapable of competing with the foreign ones even out of Chapter 11. Chrysler is privately owned by Cerebus so it will probably just go out of business unless there is a bailout. Cerebus probably isn't going bankrupt but who gives a damn if it does?

Decades ago GM agreed to the stupiest contract with the UAW I could have imagined at the time--paying workers even if plants shut down temporarily. It was symptomatic of the fact that these companies over time became de facto owned by the UAW and its members. Management expertise for a capitalistic competitive enterprise is not found inside labor unions and the UAW has historically gotten its workers wages and benefits grossly superior to their actual skill levels with some comparatively minor exceptions, I suspose, like electricians. The practical merger of the union and these companies has not resulted in a rising of the membership to greater managerial competence but a general degrading of management's executive competence. Emblematic of this is Bob Nardelli, CEO of Chrysler, who used to be at GE--itself an overrated company under Jack Welch now in bad trouble too--and went on to become CEO of Home Depot after losing out on the GE CEO spot to whatshisname. Nardelli then damaged Home Depot over many years while sucking up compensation well in excess of $100,000,000 before getting the boot and landing on his feet at Chrysler in one of the most idiotic buyouts since Mercedes purchased Chrysler or Time Warner got robbed by AOL or Microsoft almost got Yahoo but was saved by a stupid Jerry Yang who thought $31/share wasn't enough.

Let's say the Federal government takes the pensioneers off the hands of Ford and GM, the UAW goes away completely and they go through Chapter 11 with guaranteed financing. They simply won't have the needed brainpower to compete and in a few years they'll be gone. They don't even have the brainpower needed to find brainpower, IMHO, and this worsening economy won't give them the least amount of slack.

--Brant

Edited December 6, 2008 by Brant Gaede