Thursday, May 21, 2009

Are You Ready?

Call me what you want. A perma-bear, a gloom-and-doomer, a realist. One thing I do practice is caution. I like to wait for some indications via TA that there is a clear direction for an equity or the market. We are not getting that right now. TA is not clearly telling us an up or down move. It is however leaning to a lower market in the near future. But it is not clear what happens given different circumstances.

When the market gets like this and TA and the VIX and other indicators are not telling us much, I revert back to fundamentals and instinct. And to this perma-bear, gloom-and-doomer, realist, we are on the verge of beginning a slide to not only test the lows, but go lower in a capitulative move. I base this on a slew of information.

  1. Unemployment is not slowing, at all. This is huge and something economists, the fed and the banks did not count on. A recovery was suppose to be starting but unemployment is not letting that happen and any recovery has to have a significant slowing unemployment number.
  2. Housing numbers as a whole, including new home starts, home sales, average home prices, are not improving. The entire plan by the fed was to get real estate prices to stabilize. It has not happened, mostly due to #1 above.
  3. The Fed came out and admitted we are heading to a deeper recession than first thought. This is not good news for the bank stress tests. Any company exposed to debt, including banks, credit cards, REITs are gonna be hurting in the next 6 months.
  4. The dollar is getting weaker every day. This works in a strong economy but it is very risky in a week economy, especially if the economy gets worse. It can cause a spiral effect of worsening economic conditions within the U.S.
  5. State governments are in deep trouble. The Fed is going to have to bail them out or millions of jobs will be lost and the recession will turn into a depression very quickly.
  6. World economies besides China are about to implode. China can be self-sufficient and have proven they can grow without relying on the world economy. But other countries can not. The IBF will have to focus on this disaster to avoid a world wide depression.

There are many more but I am tired and want to get to my dreams soon tonight hoping I am wrong and the economy will suddenly improve. But I don't see it.

I am sticking my neck out and saying the S&P will see 700 by Sept 1 and will test the lows by Nov 1. What I hope for is the market tests the lows and bounces off and the economy actually does pickup about that time. Then, you will see this realist be the biggest bull you have ever met. We need a double bottom and we need a true recovery to happen in order to justify investing anything in this market.

I have set out my strategy. I am and have been moving into china. ETF's and Mutual Funds focused on China growth and China banks. Why China and why play China long while going short the U.S. market? Well, it is sort of a hedge, but I believe China will go down much slower than U.S market and perhaps stay stable if U.S. market slides, but China will definitely go up much faster than U.S. market so in case I am wrong, China will save me.

I am also banking on natural gas to have a significant move up based on alternative fuels coming to the forefront and nat gas to be a backup to things like solar, water, wind energy and perhaps even where Detroit will go with the new line of cars in 3-4 years. Nat gas has taken a big hit this past year and it is cyclically ready to move back.

I will be playing certain leveraged long ETF's short via puts. I will also be playing some short ETFs and double leveraged short etf's with hedges via long term puts.

I will be betting against the dollar and betting on gold.

I will not be betting against treasuries as I have been. TBT has been very good to me but is a bit pricey right now and treasuries may make a bit of a comeback short term.

But, I will do this slowly and have already started, until I see some technical indicators validate what I believe we are about to see. You can call it P3 or whatever, but I call it, fundamentals and reality.


  1. Hi,

    I found your strategy quite interesting. I mean "levereged long ETF's short via PUTs". Is there any specific reason for this strategy. Why not buying levereged inversed ETFs?


  2. The reason it is better to play leveraged long ETF's short, rather than playing the leveraged inverse ETF's is due to time decay that the leveraged ETF's are exposed to. You can read more about it on the following links.

  3. Thanks, BD. I like & appreciate this post.

  4. Beamer Dog,

    Do you think the S&P will surpass 930 and reach 1030 or 1130 this summer -- or do you think it will slide to 700 and 670 by the end of 2009?

    And with the worst of the hurt in CRE/REITS not due until 2010-2012, do you foresee the S&P falling below 670 during 2010-2012?