We are told today that last quarter the U.S. grew at 3.3% Not bad (if you can believe gov numbers) if we take this for truth, we can see that the stimulus package that each of us was given did have an effect. Now what? That is my question.
First, I do not believe the number 3.3 once we get the revision it should be downgraded as most often the fed numbers lag going up and going down.
Second if this is the result of the stimulus package, then it has run its course.
It is a wonder to behold the trickery to buy votes. My best guess is that we shrank by 1.2% but then if you count a deficit spending as growth then you can make the gov statistics an argument. around my house if I use credit cards, I seem to be more prosperous until i have to pay them. then I realize that I didn't really have the money in the first place and now I have to cut back to pay the cards off. Why would uncle Sam be any different. We are addicted to easy money. Giving quick fixes only delays the with drawls needed to get over our addiction.
It did make for a joyous pre holiday rally that everyone will enjoy until after the holidays.
Thursday, August 28, 2008
Tuesday, August 26, 2008
Political
While we are at the home stretch to the white house vote, let it be clear here that I do not endorse either Republican or Democrat. Both parties in my opinion are socialist. Neither one will make a difference. This past year as we watched the candidates grapple for delegate votes, the feds took more of yours and our freedoms without a vote and without our consent. The treasury and the reserve together set back economics to the dark ages. All on the premise that we as citizens do not know what is best for us and that they know which institutions are too big to fail etc.
If you will recall it was these same individuals that gave out low interest loans that bailed out the economy after the equities blew up. So low that it started the housing bubble. Now that the housing bubble is popped, we are witnessing the commodities bubble. All because of the feds (and now the treasury) pulling levers and tweaking things to make U.S. look prosperous.
Now I get the same old bull jive about better regulations and what all and that it is the evil speculators that caused our problems. I see both candidates making promises that even they know they cannot keep. There was a candidate I preferred that wanted to repeal the reserves act, stop wasteful spending all the things most Americans would agree on, yet he was not even invited to the debates.
So we have the media telling us whom to vote for and we have the elitists in power telling us we know nothing and stop complaining because they are in charge.
What scares me the most is that these are the opportunities for dictators and tyranny. Malcontents springing up etc. We are already pandering to them and look what is happening. Do you seriously think for one moment that either Mcain or Obama or any of their insiders will use a "universal health care"? This will only create a black market. So why do we even entertain this. You see that those in power already are too good to participate in social Security. They have their own federal retirement system.
I am only spouting here because we have allowed this and whenever I see an ad, it does not even cover the real solutions.
Sigh, we get what we deserve in a government. So trade accordingly.
If you will recall it was these same individuals that gave out low interest loans that bailed out the economy after the equities blew up. So low that it started the housing bubble. Now that the housing bubble is popped, we are witnessing the commodities bubble. All because of the feds (and now the treasury) pulling levers and tweaking things to make U.S. look prosperous.
Now I get the same old bull jive about better regulations and what all and that it is the evil speculators that caused our problems. I see both candidates making promises that even they know they cannot keep. There was a candidate I preferred that wanted to repeal the reserves act, stop wasteful spending all the things most Americans would agree on, yet he was not even invited to the debates.
So we have the media telling us whom to vote for and we have the elitists in power telling us we know nothing and stop complaining because they are in charge.
What scares me the most is that these are the opportunities for dictators and tyranny. Malcontents springing up etc. We are already pandering to them and look what is happening. Do you seriously think for one moment that either Mcain or Obama or any of their insiders will use a "universal health care"? This will only create a black market. So why do we even entertain this. You see that those in power already are too good to participate in social Security. They have their own federal retirement system.
I am only spouting here because we have allowed this and whenever I see an ad, it does not even cover the real solutions.
Sigh, we get what we deserve in a government. So trade accordingly.
Monday, August 25, 2008
Credit risk spreading
Now that Fannie and Freddie are on the brink of a massive gov. bailout, what will this do to the hundreds of financial institutions that own the shares? What will this do to the exposure of the already debt instruments issued by the feds?
With the uncertainty of which financial institution is going to survive, why risk it? Why not invest in gold since it is at a very good low right now. If you want the conservative way of holding the bullion, you can now buy GLD without the storage problems that used to be associated with gold investing. If you want to ramp up the leverage, buy stocks in gold companies. The theory is that as gold runs up, the companies are more profitable and the stocks move more than the gold itself. Or buy L.E.A.P.S. (long term anticipation securities) an acronym for options that trade 1 year or more out.
Things like oil and gold can not go to zero. They have a value. But as we are watching many stocks can and do go to zero.
The fall out is just starting to move into gear. As more institutions have no choice but to show the losses on the books it will get more ugly. Try to make sure your retirements are not involved in this toxic mess. I know many have no choice but what they are allowed to place into, but try to find the safest place. If you are in a retirement plan that offers nothing against this onslaught, try opening up a brokerage account elsewhere and buy ultra shorts as a hedge.
With the uncertainty of which financial institution is going to survive, why risk it? Why not invest in gold since it is at a very good low right now. If you want the conservative way of holding the bullion, you can now buy GLD without the storage problems that used to be associated with gold investing. If you want to ramp up the leverage, buy stocks in gold companies. The theory is that as gold runs up, the companies are more profitable and the stocks move more than the gold itself. Or buy L.E.A.P.S. (long term anticipation securities) an acronym for options that trade 1 year or more out.
Things like oil and gold can not go to zero. They have a value. But as we are watching many stocks can and do go to zero.
The fall out is just starting to move into gear. As more institutions have no choice but to show the losses on the books it will get more ugly. Try to make sure your retirements are not involved in this toxic mess. I know many have no choice but what they are allowed to place into, but try to find the safest place. If you are in a retirement plan that offers nothing against this onslaught, try opening up a brokerage account elsewhere and buy ultra shorts as a hedge.
Saturday, August 23, 2008
What this means
Several Attny "G's" are acting like they care about this credit crises and are pursuing the bankers and brokers that sluffed off this garbage to "unsuspecting" investors.
Truth is the pensions and what all that got caught (Warren Buffet is supposedly to have said that it is not until the tide goes out that you can see who is swimming naked) with their trunks down are now applying pressure and crying foul.
I thought the over regulated Oaxly sar whatever was supposed to end all of Wall Street shenanigans?
We digress here. The point is these firms have no money to buy back these securities. They are hemorrhaging billions in losses. They have no choice but to buy this toxic stuff back and beg at the reserve window for capital while using this junk as collateral.
Now how is this going to look on the balance sheet? 1 mil. in toxic waste that cannot be peddled so it really is not worth 1 mil. more like 400,000. Now I magically go to the feds place it with them at a collateral price of 1 mil. get treasuries of 1 mil. and poof my portfolio is now triple grade AAA investments.
Nice gig if you can get it.
Now the sad part is that who pays for this? That's right you and I. Now the only way they can take this from me without me screaming is to tax me. But since I am already taxed to death and will revolt with more taxes, they simply go to the auction blocks and offer this debt to anyone that will take it. Now all I am responsible for is to make sure the interest is paid. Since I will never need to pay the principle. Because when the principle is due, I simply have the treasury sell more debt. Kind of like we do roll out each and every time debt comes due.
Now if anyone can explain to me with a straight face how this trickery is not 1) Very bad for the dollar 2) Very bad for inflation. I am listening. What we are doing now is going to cost several generations.
Truth is the pensions and what all that got caught (Warren Buffet is supposedly to have said that it is not until the tide goes out that you can see who is swimming naked) with their trunks down are now applying pressure and crying foul.
I thought the over regulated Oaxly sar whatever was supposed to end all of Wall Street shenanigans?
We digress here. The point is these firms have no money to buy back these securities. They are hemorrhaging billions in losses. They have no choice but to buy this toxic stuff back and beg at the reserve window for capital while using this junk as collateral.
Now how is this going to look on the balance sheet? 1 mil. in toxic waste that cannot be peddled so it really is not worth 1 mil. more like 400,000. Now I magically go to the feds place it with them at a collateral price of 1 mil. get treasuries of 1 mil. and poof my portfolio is now triple grade AAA investments.
Nice gig if you can get it.
Now the sad part is that who pays for this? That's right you and I. Now the only way they can take this from me without me screaming is to tax me. But since I am already taxed to death and will revolt with more taxes, they simply go to the auction blocks and offer this debt to anyone that will take it. Now all I am responsible for is to make sure the interest is paid. Since I will never need to pay the principle. Because when the principle is due, I simply have the treasury sell more debt. Kind of like we do roll out each and every time debt comes due.
Now if anyone can explain to me with a straight face how this trickery is not 1) Very bad for the dollar 2) Very bad for inflation. I am listening. What we are doing now is going to cost several generations.
Friday, August 22, 2008
Careful out there
We had the bounce off what appears to be the bottom however, as in the expected correction, we also expect wild swings to take out the weak positions. Weak meaning those that are not convinced and take small losses or gains and exit.
We rolled out on TLT and DBA as well as XLE to Oct. you take what the market gives you and yesterday the market gave us good premiums to roll out. I tried for GDX but did not get a fill.
We rolled out on TLT and DBA as well as XLE to Oct. you take what the market gives you and yesterday the market gave us good premiums to roll out. I tried for GDX but did not get a fill.
Thursday, August 21, 2008
The next financial meltdown
Now that the commodities correction is behind us, who will the next victim of financial chaos? My bet is on Leahman but then what do I know.
The dollar is once again dropping as we write. So where does this put bonds? They should be imploding as well. However past concerns were averted by jumping into bonds. this time it will not help as investors scramble to find safety.
What most do not realize since their information comes from the entertainment channels is that none of the regular investments are going to work. Commodities is the place to be and so far these investments are merely exotic tools for the rich. well why do you think the rich are in them....
I am sure just as we were sure of the correction that commodities will be the next bubble. It is far from a bubble now, but as more common folks see where the action is and see that they are getting slaughtered in the usual hyped wall street junk, they will coming running. when they do, expect severe run ups and severe drops.
Until then, we will quietly amass positions.
P.S. we got such a good price on our XLE and TLT that we rolled yesterday to Oct. Once again we take what the market gives us.
The dollar is once again dropping as we write. So where does this put bonds? They should be imploding as well. However past concerns were averted by jumping into bonds. this time it will not help as investors scramble to find safety.
What most do not realize since their information comes from the entertainment channels is that none of the regular investments are going to work. Commodities is the place to be and so far these investments are merely exotic tools for the rich. well why do you think the rich are in them....
I am sure just as we were sure of the correction that commodities will be the next bubble. It is far from a bubble now, but as more common folks see where the action is and see that they are getting slaughtered in the usual hyped wall street junk, they will coming running. when they do, expect severe run ups and severe drops.
Until then, we will quietly amass positions.
P.S. we got such a good price on our XLE and TLT that we rolled yesterday to Oct. Once again we take what the market gives us.
Wednesday, August 20, 2008
Rolling out
We are seeing some great moves. This should be an indication the correction is over and onward and upward for commodities. As a result, we can roll out to the next month. I would prefer more of a run so i will defer rolling until next week.
Word of caution here. Some times when you get a good bounce of a correction you may see some back sliding.
If we were to roll out this week we would get a nice 10%. I think we can do better next week. Now when I am talking about 10% I am talking about all positions. XLE right now is much better than 10%.
Word of caution here. Some times when you get a good bounce of a correction you may see some back sliding.
If we were to roll out this week we would get a nice 10%. I think we can do better next week. Now when I am talking about 10% I am talking about all positions. XLE right now is much better than 10%.
Tuesday, August 19, 2008
Where we stand
With the correction in the commodities full upon us, I thought it would be useful to talk about some of the positions we like and have. Now it is no secret that we have come off a very large run in the commodity sector. How we got there is important. I say that because I read some very smart economists are calling for deflation. While I agree, the points I disagree are that this deflation will be for the U.S. for 2 billion people it is inflation. We are now experiencing import cost rising as our Asian manufactures are asking for price increases.
Anyways, the point here is that if we take and look at our portfolio, we can roll out to another month and get a 10% cash infusion. Not ideal, but much better than I know anywhere else with out taking on the high risks. I am not so sure I want to do this at this time. I may regret this decision later. So I am content to sit on the positions for another week and see if a larger rally wont give me a better return rolling to the next month.
These corrections can be very gut wrenching I know. It is times like this where it is hard to stay the course. You read every day that oil is coming down due to consumers using less and that this drop is demand driven etc. Yet when I study and read the international scene, 2 billion Asians are buying not only any company that will produce natural resources for them but also anything tangible (like our own Chrysler building) I cant help but think we are going to be paying much more for our natural resource consumption.
Are we in a recession? Of course, we have been since January. Yet we have seen prices jump on most commodities during this time.
I for one am still convinced of the course we established almost 4 years ago. I may be stubborn and pay the price dearly, or this may be one of the last times to buy gold below 800 an ounce for a very long time as well as all the other commodities.
Anyways, the point here is that if we take and look at our portfolio, we can roll out to another month and get a 10% cash infusion. Not ideal, but much better than I know anywhere else with out taking on the high risks. I am not so sure I want to do this at this time. I may regret this decision later. So I am content to sit on the positions for another week and see if a larger rally wont give me a better return rolling to the next month.
These corrections can be very gut wrenching I know. It is times like this where it is hard to stay the course. You read every day that oil is coming down due to consumers using less and that this drop is demand driven etc. Yet when I study and read the international scene, 2 billion Asians are buying not only any company that will produce natural resources for them but also anything tangible (like our own Chrysler building) I cant help but think we are going to be paying much more for our natural resource consumption.
Are we in a recession? Of course, we have been since January. Yet we have seen prices jump on most commodities during this time.
I for one am still convinced of the course we established almost 4 years ago. I may be stubborn and pay the price dearly, or this may be one of the last times to buy gold below 800 an ounce for a very long time as well as all the other commodities.
Saturday, August 16, 2008
A few words about diversification
I know it is the classic planning idea. I have to buy into to (well act like it anyways) every time I get by the government. The idea is that you will put some money in bonds and stocks and money markets and growth and income stocks etc. the amount or percentage that you place in each will depend on your risk tolerance and how close you are to retirement etc.
This in my opinion has always been a mistake. More so now as you see each and every asset class dropping (with the exception of commodities that is until this past month or so)
As I meet to plan individuals goals, the single most important factor IMHO (in my humble opinion) is being on the right side of the mega trends. Period. It does not matter how well diversified your portfolio is if you are on the wrong side of these tremendous trends. the entire world was caught up with equities for the mega bull we just came through. so much so that you cannot talk to any so called financial planner that does not include some portion of stocks in their recommendations. Well to be honest, where have stocks gone for the last decade?
Real Estate was always the thing to do. Until now. Once the advisors catch up to commodities, that gig should be well on its way to being a thing of the past.
My point is, when stocks are good run with them. when R.E. is good run with that. Now that commodities have come off there 20 year bear, look to them.
As we try to use leverage when we trade it is a bit different. If we were concerned about our retirement we would buy outright gold like GLD or oil like USD or something to that effect and let it run until it will become obvious the trend is over then look for the next trend. But since we enjoy the gains that come from leverage, we want to be able to stay in the game come the corrections that always show up. For that we like options. We can own or control for a fraction what it would take to own or control regular shares. But then we get the time decay that is a problem, a constant never ending problem each and every day. By using spreads, we nullify the time factor allowing us to participate in the leverage with out the other usual consequences. We will let the other hot shots buy our short side and tell us all about how much they make on the short term. We will smile and know to ourselves that the next trade he/she will give it all back.
This in my opinion has always been a mistake. More so now as you see each and every asset class dropping (with the exception of commodities that is until this past month or so)
As I meet to plan individuals goals, the single most important factor IMHO (in my humble opinion) is being on the right side of the mega trends. Period. It does not matter how well diversified your portfolio is if you are on the wrong side of these tremendous trends. the entire world was caught up with equities for the mega bull we just came through. so much so that you cannot talk to any so called financial planner that does not include some portion of stocks in their recommendations. Well to be honest, where have stocks gone for the last decade?
Real Estate was always the thing to do. Until now. Once the advisors catch up to commodities, that gig should be well on its way to being a thing of the past.
My point is, when stocks are good run with them. when R.E. is good run with that. Now that commodities have come off there 20 year bear, look to them.
As we try to use leverage when we trade it is a bit different. If we were concerned about our retirement we would buy outright gold like GLD or oil like USD or something to that effect and let it run until it will become obvious the trend is over then look for the next trend. But since we enjoy the gains that come from leverage, we want to be able to stay in the game come the corrections that always show up. For that we like options. We can own or control for a fraction what it would take to own or control regular shares. But then we get the time decay that is a problem, a constant never ending problem each and every day. By using spreads, we nullify the time factor allowing us to participate in the leverage with out the other usual consequences. We will let the other hot shots buy our short side and tell us all about how much they make on the short term. We will smile and know to ourselves that the next trade he/she will give it all back.
Thursday, August 14, 2008
Inflation says the headlines today
Worst since 1991 it goes on to say. Shocked and dismayed cry the pundits...Is not the feds in control of inflation they ask.
Truth is, the feds are the ones that create inflation. It does not just grow and need to be trimmed back each fall. It is a direct result of too much fiat currency. Every time a public figure throws my hard earned money at a problem, that is inflation.
You can either listen to your broker and believe stocks will come back because they always do and go about your business, or you can start to take charge of your finances.
Bonds will get hit as the feds (as usual) will follow the interest rates higher. I know you have been taught that the feds control rates, but that is fantasy.
Corporations will get squeezed between raising costs and trying to raise prices. this will erode profits. Will anyone pay todays price for a company that is not going to earn as much down the road? Of course not so stocks will continue to fall.
Real Estate normally would rebound in this type of environment, however since Real Estate is the symptom of loose credit, it too has a way to go of contracting.
In my view that leaves only one asset that will even keep up with inflation and you already know what that is.
10 years from now most folks will know about commodities like they do mutual funds. Why not get involved now and be one of the smart investors that will reap windfalls in the next few years.
One of the best ways I know is through leverage. However I hate to take on risk. You say then how can you leverage without risk taking. Technically you cannot. But you can manage the risks like the insurance industry does.
This takes this article to where we are now. Long term options for the growth potential, followed by selling short term options to counter the dangers of time decay.
If you can time when these natural resource markets are going to turn and run followed by the always present corrections, then you will come out far better than me. But 30 years of trading tells me I cannot accomplish this feat therefore I just want to make sure that I am there when the market is moving
Truth is, the feds are the ones that create inflation. It does not just grow and need to be trimmed back each fall. It is a direct result of too much fiat currency. Every time a public figure throws my hard earned money at a problem, that is inflation.
You can either listen to your broker and believe stocks will come back because they always do and go about your business, or you can start to take charge of your finances.
Bonds will get hit as the feds (as usual) will follow the interest rates higher. I know you have been taught that the feds control rates, but that is fantasy.
Corporations will get squeezed between raising costs and trying to raise prices. this will erode profits. Will anyone pay todays price for a company that is not going to earn as much down the road? Of course not so stocks will continue to fall.
Real Estate normally would rebound in this type of environment, however since Real Estate is the symptom of loose credit, it too has a way to go of contracting.
In my view that leaves only one asset that will even keep up with inflation and you already know what that is.
10 years from now most folks will know about commodities like they do mutual funds. Why not get involved now and be one of the smart investors that will reap windfalls in the next few years.
One of the best ways I know is through leverage. However I hate to take on risk. You say then how can you leverage without risk taking. Technically you cannot. But you can manage the risks like the insurance industry does.
This takes this article to where we are now. Long term options for the growth potential, followed by selling short term options to counter the dangers of time decay.
If you can time when these natural resource markets are going to turn and run followed by the always present corrections, then you will come out far better than me. But 30 years of trading tells me I cannot accomplish this feat therefore I just want to make sure that I am there when the market is moving
Wednesday, August 13, 2008
Is the correction over
This is the question I am getting many times right now. To which I reply it may very well be. If it is not, then it will be soon.
Not being a timing expert, I can only go with what should be. As we look at the gold market jumping 9 yesterday and the grains moving once again. What really is getting my attention is the dollar. It appears that the run up over the last few weeks seems to be at a stall.
If you are in the commodities as a bull for a while longer, this has you excited. After all since oil is traded in dollars, any weakness in the dollar spills over into higher oil prices. If you are not of the opinion of this blog author, then you are going to be upset with the prices of everything marching higher.
Corrections can be very gut wrenching. Especially watching the entertainment channels. I too see what you see. Instead of getting fearful, I smile and enjoy the pundits. It is almost as fun as watching the Olympics. The Real Estate market has bottomed, the oil bubble has popped, gold investors are taking a beating...Yes I see it too.
Fundamentally, the housing has more to go, what has changed over the course of a year since it first reared it's ugly head. Only billions upon billions poured into the mess. The same billions poured in at cheap interest that caused these bubbles in the first place. That has not changed. While the U.S. has drop slightly in consumption, that has been taken up world wide by many other nations. We are still as a world consuming more than we are producing. That is the fundamental picture.
Not being a timing expert, I can only go with what should be. As we look at the gold market jumping 9 yesterday and the grains moving once again. What really is getting my attention is the dollar. It appears that the run up over the last few weeks seems to be at a stall.
If you are in the commodities as a bull for a while longer, this has you excited. After all since oil is traded in dollars, any weakness in the dollar spills over into higher oil prices. If you are not of the opinion of this blog author, then you are going to be upset with the prices of everything marching higher.
Corrections can be very gut wrenching. Especially watching the entertainment channels. I too see what you see. Instead of getting fearful, I smile and enjoy the pundits. It is almost as fun as watching the Olympics. The Real Estate market has bottomed, the oil bubble has popped, gold investors are taking a beating...Yes I see it too.
Fundamentally, the housing has more to go, what has changed over the course of a year since it first reared it's ugly head. Only billions upon billions poured into the mess. The same billions poured in at cheap interest that caused these bubbles in the first place. That has not changed. While the U.S. has drop slightly in consumption, that has been taken up world wide by many other nations. We are still as a world consuming more than we are producing. That is the fundamental picture.
Thursday, August 7, 2008
Consumer spending
Wal mart less than expectations. So the consumer is showing signs of stress. Many will point this out as proof positive that the slow down will take a bite out of natural resources.
If you see the numbers, that is not true. Many producers of natural resources are falling in output. Once that is really understood in the market place the next phase of the bull run will take off.
I am playing this with diagonals. The explosive possibilities to the upside make it a better return with diagonals.
If you see the numbers, that is not true. Many producers of natural resources are falling in output. Once that is really understood in the market place the next phase of the bull run will take off.
I am playing this with diagonals. The explosive possibilities to the upside make it a better return with diagonals.
Wednesday, August 6, 2008
For the whole world to see
I placed an order for XLE Mar '09 long 73 call and sell Sept '08 74 call. for 4.60
The correction we expected has happened. Are we at bottom? Not sure. But I placed the trade so everyone can see.
For those that do not know, this is called a diagonal spread.
The correction we expected has happened. Are we at bottom? Not sure. But I placed the trade so everyone can see.
For those that do not know, this is called a diagonal spread.
Tuesday, August 5, 2008
Corrections vs. Trend reversals
Okay so we have before us the long awaited correction in commodities. Look at past posts to show we expected this we wanted this we relish this. Another chance to get long the commodity train as it pulls out of the station.
So the logical question that I am getting asked is "how do I know this is not a trend change a reversal in commodities".
I even went so far in one post to say that these corrections can appear as reversals and to not lose hope.
One thing about corrections is that they always occur. You can count on them like clockwork. They indicate a healthy trend. But trends do change and reverse and we want to make sure we are not stubborn and end up on the wrong end of a trend.
1) Mega trends that I like to follow typically take at least10-20 years. The commodity trend is in its infancy of only 8 years.
2) Not that I am by any means a technical trader, but trend reversals typically have double tops. Look at the mega bull in equities. Topped out in 2001 had another basic top in Oct of 2007. So if we get to 147 a barrel in oil again and gold at 1,000 an ounce and have a massive correction like we are in now, that would be time to sit up take notice and re-evaluate our trend.
3) Mega trends usually blow off with a mad rush of mass hysteria and buying. Dot.coms were going to make everyone millionaires if you remember, Houses were the next gold mine, and when we hear the man on the street making millions in commodities, then we know this too will have run its course and ready for a trend reversal.
4) When you watch a game show and the contestants tell you they trade commodities for a living, then definitely get out.
So all the pundits may have this one right. We may be in a reversal. I even read yesterday someone spouting that the oil bubble is losing its air. Oil isn't even at its inflationary high, so why would I expect this to have been a bubble?
If you have never been in a correction trading, it can be scary. This is where the opportunities are made more than any other time. We will look back on 115 or even less barrel of oil with woulda shoulda coulda.
If you remember the equities, '87 was a killer and yet look at them now. In fact any blind buy and hold cling to this as proof, not realizing the gig in equities is up for many years to come.
If you cannot stomach the corrections even though we spell them out for you, then wait until the trend is obvious again and get in. You will not get the gains that are possible, but then sleeping at night is much more important.
This is why we trade with long term options being on the right side of the trend at the same time selling options to smooth the corrections that come our way. I wish there were a way to avoid corrections that always seem to appear as trend reversals, but then these are the buying opportunities.
So the logical question that I am getting asked is "how do I know this is not a trend change a reversal in commodities".
I even went so far in one post to say that these corrections can appear as reversals and to not lose hope.
One thing about corrections is that they always occur. You can count on them like clockwork. They indicate a healthy trend. But trends do change and reverse and we want to make sure we are not stubborn and end up on the wrong end of a trend.
1) Mega trends that I like to follow typically take at least10-20 years. The commodity trend is in its infancy of only 8 years.
2) Not that I am by any means a technical trader, but trend reversals typically have double tops. Look at the mega bull in equities. Topped out in 2001 had another basic top in Oct of 2007. So if we get to 147 a barrel in oil again and gold at 1,000 an ounce and have a massive correction like we are in now, that would be time to sit up take notice and re-evaluate our trend.
3) Mega trends usually blow off with a mad rush of mass hysteria and buying. Dot.coms were going to make everyone millionaires if you remember, Houses were the next gold mine, and when we hear the man on the street making millions in commodities, then we know this too will have run its course and ready for a trend reversal.
4) When you watch a game show and the contestants tell you they trade commodities for a living, then definitely get out.
So all the pundits may have this one right. We may be in a reversal. I even read yesterday someone spouting that the oil bubble is losing its air. Oil isn't even at its inflationary high, so why would I expect this to have been a bubble?
If you have never been in a correction trading, it can be scary. This is where the opportunities are made more than any other time. We will look back on 115 or even less barrel of oil with woulda shoulda coulda.
If you remember the equities, '87 was a killer and yet look at them now. In fact any blind buy and hold cling to this as proof, not realizing the gig in equities is up for many years to come.
If you cannot stomach the corrections even though we spell them out for you, then wait until the trend is obvious again and get in. You will not get the gains that are possible, but then sleeping at night is much more important.
This is why we trade with long term options being on the right side of the trend at the same time selling options to smooth the corrections that come our way. I wish there were a way to avoid corrections that always seem to appear as trend reversals, but then these are the buying opportunities.
Monday, August 4, 2008
Real Estate
I went out this weekend just to peruse the scene. For the most part our area had held up pretty well over the last years carnage everywhere else. It too is collapsing. Bargains to be had. Problem is, if I buy now, will there be more drop left to go. I am thinking yes. So now we play the tight rope game here. Wait too long and the deals will not longer be there, get in too soon and it could be a few years to break even point.
What has this to do with options? Plenty. Remember it was the lose credit policy from investment houses, lenders, the feds etc. that got the housing bubble going full steam. Which in turn has bleed over into the over all economy. So until housing comes back we are still headed for troubled waters regardless of what the feds put out there for numbers. After all we should all know the feds numbers eventually show the truth. Problem is I cannot invest properly on "revised" numbers. By the time the gov revised last falls numbers this past week, the financial stocks had already imploded. Shorting financial stocks now would be just a small gain while taking large risks.
Use your common sense while looking at fundamentals. If you see everyone chasing something, know that the gig is up. The same thing will hold true to commodities. By the time this bull is over, we will see unheard of prices and the masses tripping all over each other trying to get long. Some touting how smart they are and to follow them and amass a fortune. Yadda yadda yadda. In the last 10 years we have seen this attitude in dot.com stocks, Real Estate and now commodities. Once this happens,look to exit the game and find the next bubble the feds create.
What has this to do with options? Plenty. Remember it was the lose credit policy from investment houses, lenders, the feds etc. that got the housing bubble going full steam. Which in turn has bleed over into the over all economy. So until housing comes back we are still headed for troubled waters regardless of what the feds put out there for numbers. After all we should all know the feds numbers eventually show the truth. Problem is I cannot invest properly on "revised" numbers. By the time the gov revised last falls numbers this past week, the financial stocks had already imploded. Shorting financial stocks now would be just a small gain while taking large risks.
Use your common sense while looking at fundamentals. If you see everyone chasing something, know that the gig is up. The same thing will hold true to commodities. By the time this bull is over, we will see unheard of prices and the masses tripping all over each other trying to get long. Some touting how smart they are and to follow them and amass a fortune. Yadda yadda yadda. In the last 10 years we have seen this attitude in dot.com stocks, Real Estate and now commodities. Once this happens,look to exit the game and find the next bubble the feds create.
Subscribe to:
Posts (Atom)