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RVAspeculator (29.21)

The speed bump on the road to inflation

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13

November 09, 2008 – Comments (8) | RELATED TICKERS: GLD

First off, regarding the election all I have to say is…

The party of big government soundly defeated the other party of big government.

Now back to stocks and the economy.

As readers of this blog know I was shorting everything until mid-September when I stopped trading all together as things got too crazy.  (Government banning short selling, government buying shares of companies in the open market, VIX above 30)

So from mid-September till now I had not placed any trades (except going long in my retirement account too early), but late last week I finally started dipping back in.

The first thing I did is I sold out of the money USO puts (oil ETF) with USO near 50 for December expiration.  Currently you can sell the USO December 48 Put for $5.00 which means the worse case scenario is you have to buy the USO BELOW $43 and if USO rises or just doesn’t go below $43 before mid-December you get a free $500 for every contract you sell.   You don’t even need oil to rise for this work, you just need it to not crash another 15%+ before December 2008 to make money.  

This is the type of distortion that occurs in the options market when volatility gets this out of wack.   I think a person would almost have to be insane to buy a put or a call in this environment… but selling them makes quite a bit of sense!

Also I have been buying some gold miners and have more my shopping list. 
I picked up
SLW at $3.70
AUY at $4.75
GDX at $ 21.35

Looking to buy PAAS after earnings next week and maybe a small position in CDE.

Overall stock market bottomed on October 10th and we have been pushing higher in a jigsaw fashion ever since.  I do not know if October 10th was “THE” bottom or not but what I do know is I have never heard so many people calling this “the next great depression”.

Well, lets assume they are right and this is like the great depression. Look at some of the bounces during the great depression!


S&P500:
June 1, 1932 to Sept 7, 1932: 4.40 to 9.31 (gain of +111.6%)
Feb 27, 1933 to July 19, 1933: 5.53 to 12.20 (gain of +120.6%)
Oct 19, 1933 to Feb 4, 1934: 8.61 to 11.82 (gain of +37.3%)
Mar 14, 1935 to Mar 5, 1937: 8.06 to 18.68 (gain of +131.8%)
Mar 31, 1938 to Nov 14, 1938: 8.50 to 13.78 (gain of +62.1%)
The average gain for the five major intermediate-term Bull cycles during the Great Depression was +92.7%.   (thanks to Bill Cara)


So I am still bullish on the stock market here at S&P 930 and think we could push significantly higher not because economic conditions have improved but simply because people have realized the world is not going to imminently end.


As I have stated many times before, I think this is much different from the great depression because we are not on a gold standard anymore.   Take a look at this chart of Federal Reserve holdings if you are a long term deflationist like everyone seems to be these days…
http://1.bp.blogspot.com/_pMscxxELHEg/SRNjF1DouzI/AAAAAAAADus/L-_ksRyEZYw/s1600-h/FederalReserveAssets.jpg
(thanks Calculated Risk)


The Fed now holds well over 2 trillion in toxic waste and there is NO LIMIT to how much trash they can take on.


The most important and yet unanswered question is WHO IS GOING TO BAIL OUT THE TAXPAYER???
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Overall market bias:  Postive

8 Comments – Post Your Own

#1) On November 10, 2008 at 12:04 AM, MarketBottom (29.21) wrote:

Market for traders not investors

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#2) On November 10, 2008 at 12:16 AM, RVAspeculator (29.21) wrote:

MarketBottom,

I agree with you 100% on that...   Until the weekly moving averages flatten out a bit it's a traders world and everything is high risk.

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#3) On November 10, 2008 at 12:20 AM, Gingerbreadman55 (28.73) wrote:

"The party of big government soundly defeated the other party of big government."

Best.Phrase.Ever.

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#4) On November 10, 2008 at 12:33 AM, MarketBottom (29.21) wrote:

RVAspeculator,

The thing I had to change was my thinking about inflation, and the magnitude of what is happening. Sixteen years after Japan topped, they have been unable to restart inflation, and it looks like the US may be faced with the same thing. Housing is years from the bottom, and it does look like both oil and gold have more downside. Credit markets remain frozen, and the credit markets are saying that a large part of corporate America will not survive. I don't believe it is overreacting to believe that.

You are right that the largest upmoves occurred during the depression. You can't go short equities for longer than five minutes because as soon as one hundred dollars goes in, you get run over and stopped out.

And God help you if you are long when it crashes. Stops or limits will not be hit when it happens. You will get sold out at the bottom or filled at the top.

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#5) On November 10, 2008 at 7:55 PM, DemonDoug (71.12) wrote:

The japanese never pumped 1.5 trillion into it's economy in an 8 month span.  Did they ever bailout a fannie or a freddie or give a mega cap like AIG what are they up to now 250B?

It's all printed funny money.

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#6) On November 10, 2008 at 9:17 PM, RVAspeculator (29.21) wrote:

Thanks Demon...

I agree with you 100%, people who compare this to Japan have no idea of the scale of bailouts that are going on right now.  If people believe these are really "loans" I have a used car I would like to sell them.

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#7) On November 10, 2008 at 10:21 PM, jdawg1847 (78.45) wrote:

When everyone wakes up and realizes they aren't loans, they will have already massively inflated the monetary base and the dollar will really crash, as fast as its gone up here in the past 3 months.

 Take a look at the YoY change of the base money supply.  The only time its ever been like this is the Great Depression.  Interesting!

http://1.bp.blogspot.com/_nSTO-vZpSgc/SRVLM8Kif0I/AAAAAAAADs8/Ad1Iwf_fPJ0/s1600-h/base-money-yoy-1.png

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#8) On November 10, 2008 at 10:22 PM, jdawg1847 (78.45) wrote:

One other point -- the one party of big government, the Republicans, wants a big Department of Defense.  The other party of big government wants a big welfare department.

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