Attn All-Star portfolio followers...
Warning to followers of the portfolio...
I am currently leaning toward believing that another market correction is coming shortly that will have an adverse effect on commodities. I still believe that we will be in stagflation and FRMSF.PK is the pick for the long term, but I believe that the market will panic on the next downturn and take a while to sort itself out.
It appears that in today's end of day sell off, the market took a deflationary view of the FED's announcement. I actually had an inflationary view of the announcement myself, but I was more worried about a change in interest rates. The market seemed to be concerned with a slow down of the government buying crap financial instruments. I'm in belief that the money that we are pumping into crap isn't productive money anyway, since the financial institutions hang on to every penny that they receive instead of spurring the economy.
I've been thinking about this for a while today and then it hit me. Right now the major players in this market like GS or JPM have been playing fast and loose in the market. They have been doing this for a bunch of reasons...
1) There is still a lot of major money on the sideline and they have more control over the market.
2) They have a government backstop for protection. Specifically relaxed accounting rules that let them get creative.
3) They have convinced the market that their own stock is strong because they have support from the government.
4) They seem to have access to an unlimited supply of dark money. (Although I won't imply that this has anything to do with the money that they simply can't find over at the FED.)
5) They have the ability to manipulate their own stock prices in the market, as long as people still believe #3.
It's when I realized that last item, that things started to come together. Here's the problem, they don't have to pump just their own prices, they have to pump the prices of the sector to insure investor confidence. Some of the money on the sideline is going to figure out that stocks like Citi and AIG can't afford a government slowdown in the purchasing of crap. AIG is making another offering just so they can survive with the current pace of purchasing crap. Remember that it has already been established with the average Joe on the street that AIG is too big to fail.
So they have 4 problems now...
1) They were overextended to begin with and with the hit of government purchasing less of their crap, they will have to close some positions.
2) They have to protect themselves from a negative effect of the sector and will have to close even more positions.
3) They have to prop the sector which will force them to add positions in AIG and Citi, which will force them to close even more positions.
4) The money on the sideline is well aware that a slow down in crap buying will effect the sector. They are also aware that crap sellers have been manipulating the market.
I have given everyone my thought process up to this point and I'm an admitted conspiracy theorist in this market, so take it all for what you think it's worth.
Now here is how I'm going to play it...
I have a feeling that the market manipulators are still going to fight. Since they have a weakened position, they will try to boost the financials first and try to cause a little of the inflation that they have been suppressing up until this point. This will allow them to boost the market while withdrawing from some of their positions. I'm looking for a rise in the financials in the short term for validation. If I don't see that then I'm taking it as capitulation and selling every green thumb that I can. If I do see it, I'm waiting for the inflation pump to sell most of my green thumbs. I'm thinking that the money on the sideline will overcome the puppet masters this time.
I am giving you this information before I take action because I realize that my view is a little more extreme and I'm trying to allow you to make your own decision. Once the correction occurs, the first thing I'm planning on buying is commodities and particularly silver, sugar, and fertilizer.
Solaris I will let you know as quick as possible when I want to close the pick. For the sake of the portfolio I may close it sooner than other commodities because I know that you may not see it for a while. For the followers of this portfolio, I will probably close this pick in my own portfolio after I close it in All-Stars. If you are online a lot and you like to take risks, you can try to copy me for a few more points.
One last thing to think about with FRMSF.PK is that at any time they are due to announce a production increase due to getting their 3rd mine fully online. Since their production will almost double, it's a big announcement. This could happen in the time between when I sell commodities and when I buy them back. If you are a long term investor, you can chose to stay in the stock and ride it out. You have a good chance of overtaking me in the stock since I'm basically doing market timing. I am expecting a big short term turn in commodities though, and this is a volatile stock. To me the better choice is to find a better place to buy than to hold a volatile stock in a downturn,but you may think otherwise.
I do hope that this helps.
ps... i will copy this into the last All-Star blog.