Tuesday, February 3, 2009

Reader Questions

The time has come to once again answer some reader email. The questions are pointed and very worthy of much discussion.

P.L. asks... how can you advocate a policy of 'doing nothing' when the economy is crumbling beneath us?

Unfortunately doing nothing is exactly the thing to do. I realize it is human nature to do something, Just as it is natural to say something at a time when silence would most often be the correct choice.

The meddling and intervention is what got us into this pickle in the first place. We would have had a doosy of a recession back in 2000 had the Maestro (Greenspan) left things alone. But alas, his hubris and feeling of superior intellect would not permit this. The only thing worse than his creation was his remedy. He created Frankenstein, (the tech bubble), to fix it he lowered rates from 6 to 1%, winked, nodded and prodded the derivative trade, and in doing so created Godzilla, (the housing credit bubble).

So yes P.L. doing nothing is unequivocally the right thing to do. Doing more of what got us into the mess is precisely the wrong thing. Just as we cannot re-create the tech bubble, we cannot re-create the lending/credit bubble.

When a hurricane or tornado comes your way, you do nothing but get out of the way. You seek safety by getting out of its way or hunkering down in the cellar/basement.

D.H. asks the following..... You are short stocks so you're constantly talking your book with negative commentary, no different than the gurus you rail upon on TV.

This is a great comment. I most definitely am short the market as I post my positions daily. I know of no other way to trade in a bear market for bearing long in a bear market is a recipe for disaster just as being short in a bull market is. That should be obvious but I guarantee it isn't to the vast majority out there !

When one is walking down the train tracks and sees a train approaching, does one step aside the oncoming locomotive or does one 'hang in there' and get run over?
Once must protect oneself and of course step aside, further there is no need to pat yourself on the back after you do so.

The purported patriots, who imply the shorts are unpatriotic by selling America, basically are recommending getting run over. I see no patriotism nor logic is this thinking, and believe me, I am being kind calling it thinking.

I am bearish because the charts and the facts speak so not because I am a dedicated short seller(which I am not). Until these charts and facts change I will retain my stance, just as I would were this a bull market. In the end the ultimate arbiter is the profit or loss from your positions. I have been short and those positions have gone up in value and this is the ultimate judge. If they lost money I would close them as there is no sense in fighting the tape or swimming against the current.

S.C. remarks .... You shorts are making this market much worse, shorting should be illegal !

I would humbly disagree. The lying and thieving bankers, the Frankenstein finance MBA's on Wall St. made this market what it is, the shorts had absolutely nothing to do with it. The shorts were actually wide enough to see it coming and not only get out of the way but make money from it. Do not begrudge them, for they did not begrudge your gains on the long side.

Besides, profiting from a decline in a security is as American as it gets like it or not, the shorts have uncovered every fraud out there as they have much more to lose, unlimited losses as they sky is the limit on the upside, as does a long have, stock can only go to zero not bereft of morals as many.

Make shorting illegal and you guarantee a crash as any and all buying support would be removed. Did you not see what happened when the SEC restricted shorting financials? They went done much worse than they had before and yet another example of meddling when doing nothing would be the answer.

A.V. asks the following..... If you hate CNBC (pom pom network) so much why do you watch it ?

Quite simply it is like watching a train wreck in slow motion. You just cannot take your eyes off it. Why does the entire neighbourhood show up to watch a fire? Human nature maybe? I am not sure but what I do know is that an old coach who taught me a lot more about life than he could ever imagine once said, "when you have learned what not to do you have learned what to do". Hence my interest in CNBC, I really want to learn what not to do.

That said, not all of them are boobs and boobs in chairs, regulars like Art Cashin, Rick Santelli, Diana Olick, Phil LeBeau, along with a smattering of odd guests make putting up with hours upon hours of drivel worth it. I kid you not, you can learn more from Rick Santelli and Art Cashin in 60 seconds than months upon months of guest guru All-Stars ! I cannot stress this enough !

Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 2 units Ultrashort MSCI EAFE ticker EFU @ $89.80 stop at $89.80
Long 2 units Ultrashort S&P500 ticker SDS @ $69.80 stop @ $66.15
Long 1 unit Ultrashort Real Estate ticker SRS @ $51.30 stop @ $47.18
Long 1 unit Ultra Crude ticker UCO @ $10.60 stop @ $9.38
Long 1 unit US Gasoline fund ticker UGA $21.85 stop @ $19.58
Short 1 unit Darden ticker DRI @ $27.70 stop @ $28.70
Short 1 unit Wells Fargo ticker WFC @ $20.20 stop @ $22.43
Short 1 unit JP Morgan ticker JPM @ $27.35 stop @ $29.54
Short 2 units Morgan Stanley ticker MS @ $21.30 stop @ $23.82

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