-- Posted Friday, 13 February 2009 | Digg This Article | Source: GoldSeek.com

One of the biggest complaints from investors over the years is “financial advisers always tell us when to buy but not when to sell.” My answer is always the same and in two parts:

Part one - They will tell you when to sell if they have something else for you to buy.

Part two - There’s one way to know when to sell each and every time. Forget what you paid for what you’re thinking about selling and the reasons you first bought it. Just ask yourself this question, “Knowing what I know today, would I first buy it with the capital it’s currently worth?” If the answer is not a firm yes, then selling is definitely the answer.

But for many investors, they can’t pull the trigger no matter what for a whole host of reasons, including, but not limited to:

• Can’t bring themselves to take a loss emotionally, financially or a combination of both
• Fearful that as soon as they sell, it will go up
• It’s a blow to their ego, pride or both
• Realize they didn’t have a full grasp on the downside potential and now engage the worse investment strategy - they hope to get their money back.

It’s critical for you to realize that investing is a constant change of thoughts and actions. Buy and hold was a horrendous myth that has blown up all around the world and has wrecked hundreds of millions of lives worldwide for years to come. The best coaches in the NFL are those who come out in the first half with a game plan, see it’s not working, and at half time come up with new schemes. (Bill Belichick of the New England Patriots is a master of this). Military generals know they must be prepared to change plans all the time. This is why I have said for years that traditional financial planning is a flawed process. You can’t simply develop a portfolio of different investments and then expect to simply hold them to reach your goals. I hope to explain this and more in my new book, “Confessions of a Wall Street Whiz Kid.”

If you strictly use “part two” as your strategy, I know you will do much better over time. Remember, the ultimate crime in investing is not being wrong, but staying wrong.

Reflection Time

I made a dramatic change in my overall outlook in October, 2007. I came to the conclusion that we were on the threshold of a major social, economic, political and spiritual upheaval. I suggested one should sell all their stocks except those related to precious metals. I even went so far as suggesting that shorting the U.S. market was a worthy speculation (remember, speculation is a fancy Wall Street word for gambling). While I gave a whole host of reasons then and throughout the last 18 months or so, there was one overriding reason I continuously repeated:

America has been robbing Peter to pay Paul but Peter was tapped out.

Simply put (and that’s how I like to put things), I felt (and still feel) we had lived way beyond our means, had far too much “stuff,” owned very little of it and had become debt junkies. And, in my desire to drive it home before it was too late, I urged, pleaded and begged people to watch one video. I called David Walker, then-Comptroller of the U.S., a 21st century prophet.

I also urged, pleaded and begged investors to realize that the financial industry was full of so-called experts who were part of a “Don’t Worry, Be Happy” crowd. Perhaps some people found this description childish, but because I like to put things simply, I use this description to drive home the belief that the bulk of advisers would always be slanted towards “the cup half full and you should buy, buy and buy.” And nowhere was this more prevalent then on CNBC-TV (which some of you know I call TOUT-TV).

Before I review the markets, let me close on my reflection by reminding you what I believe this blog and me are all about.

Back at the start of the millennium, after being shown that just about everything I had learned in my sixteen years in the financial industry didn’t put the needs of investors first (and make no mistake about it, I was guilty of much of what I now speak harshly about and will share this in my new book), I decided that going back to work for a typical financial services firm was no longer for me. Through the hand of God, I began dealing with professional athletes and returned to publishing my newsletter. I really had only one other credential and that was I had knowledge of metals and mining. At the time, I perceived the metals and mining market to be too small to build up any substantial paid subscriber following, but small to mid-size resource-oriented companies felt I could help them in corporate development. I realized I could still do what I love the most, speaking about markets, and take care of my family at the same time.

I not only fully disclosed any and all potential conflicts of interest, but I went out of my way (and still do) to make speculators keenly aware that failure was the norm in the business. For the most part, speculators appreciate these facts but some still can’t grasp that I’m going to be on the wrong side more times than not. My only regret is that at times I became so entrenched in an individual play thinking it could be the rare homerun, only to swing and miss.

Readers have always been free to read just my market opinions without reading about my clients. I never made the latter a prerequisite. I know most come to hear my market views and I welcome that. Like I said, I’m not a man of many talents. I only hope that foreseeing this once in a lifetime financial upheaval, it helped some. It makes all I do so worthwhile.

Overall View

While it’s important to look at things worldwide, it’s fair to say the key root to all this has been the U.S. Like it or not, the world still looks to the U.S. as a critical part of the global financial markets. Some time down the road, the world should begin to decouple from the tremendous baggage the U.S. carries, but for now, we remain front and center.

By now, even the average American has some idea how we got in this mess so I won’t waste time on rehashing the causes. It’s still important however to look at the effect.

We’re up to our necks in you-know-what, and because of the poor ways we chose to live our lives the past few decades there appear to be no lifesavers. Actually, I’m wrong. Last year, after what many Americans felt was a rudderless ship of state, a new Captain seemingly came out of nowhere and was elected Savior. It didn’t matter that little was known about him and how he got to grab the rudder seemed like a mystery. Reports of possibly being a reform pirate of the sea quickly disappeared over the horizon. Before we knew it, the bulk of the passengers saw him as the one man who could “change” course and steer us back into the gulfstream of the good life again.

Many of the passengers made the old captain of the ship walk the plank; along with the man his crew had hoped could replace him. The thought of the new savior assuming control brought joy to the disheartened “happy” crowd and they began to sing holiday songs as year-end approached.

As soon as the savior took control, waves started to hit the good ship Lollypop as the captain began to introduce his new crew. Unfortunately, several of the new officers and crew were unable to work due to excessive baggage and only one received a waiver and took his post. Meanwhile, the captain travelled throughout the ship, warning of rough seas ahead but if the passengers undertook his call to arms, spent everything they had and then some, it would reshape the ship and smooth sailing would eventually occur.

Unfortunately, his one major new officer fell hard on deck earlier this week and some feel the Captain threw him under the deck. The “happy” crowd started to panic again and began to disagree by screaming “man overboard.” This has caused the ship to list, but the good Captain still has enough believers to continuing steering for the time being.

For me, I see a 21st century edition of “Mutiny on the Bounty” before too long.

In all seriousness, the only thing that stopped us from a total meltdown this week is the fact that it’s still too early for most to call for Obama’s head. By doing so would make the “happy” crowd have no reason to keep their false smiles going. But looking closely at these first few weeks of Obama’s administration, one could wonder if it is really change or more of the same? Not only has he IMHO stumbled badly out of the gate, but his ability to be a team leader is already in question.

Make no mistake about it, whether you’re discussing business, politics or sports, the person at the top will make or break you.  So far I see nothing to lead me to believe the man who came from nowhere can truly take us somewhere better anytime soon…or ever. If Obama doesn’t shake off first quarter jitters, this could be a lopsided game in favor of the bears.

U.S. Stock Market

It appears the remaining “silver bullet” has missed its target. If so, the only thing left is the “happy” crowd’s hands and feet to do battle (and they have running sneakers on). That may be difficult knowing the bears are currently packing M-16s, tanks and already have their bibs on.

Long time readers know I don’t spend day after day claiming manipulations, conspiracies, etc. I have written on occasion about what we now know is fact: the government does have what some have coined the “Plunge Protection Team (PPT). I believe this team was in action today in the U.S. stock market. To the best of my knowledge, I have only made this charge once in 25 years regarding the stock market - the day after the the 1987 market crash.

I was doing a ton of work on the computer today and as almost always, I had Tout-TV on mute. I use it to  look up and see market prices from time to time. I have noted in the past that I turned the sound on for just two CNBC personnel - Rick Santelli and Charlie Gasperino. Both men have demonstrated to me not only a real understanding of the markets, but are very balanced in their reporting and views.

The stock market was trading between 100-200 points lower through early afternoon when I caught Charlie on the screen. I turned the sound on to hear him report that Goldman Sachs held a secretive meeting just hours after Geither’s bombing first time out of the box on Tuesday. He reported more than one source told him this and went on to describe the gist of what was discussed. Charlie has broken numerous stories, all of which ended up true and the manner in which he spoke about this one came across as more of the same.

Anyone with half a brain should have come away from this report as I and some of the other CNBC personnel did, that there was real worry on Wall Street about Geither and the ability for him and others to fix the problems. The DJIA started peeling off and was off more than 200 points when the Booyah clown came on and read a statement from Goldman Sachs denying much of Charlie’s report and claim the meeting had been planned for weeks. Charlie’s written and on-air claims noted at first Goldman Sachs denied the meeting even took place.

The text of his article has been updated (and the part of GS first denying the meeting is now gone) but the original video is still on their website. Here’s also the follow-up by Charlie after the Goldman denial and just minutes from the close. He doesn’t back down from his claim and again IMHO, his laughter regarding their denial made me feel he felt everything he first reported was totally accurate.

CNBC ran the denial by Goldman as the #1 news story at 3PM but in a minute or two, the DJIA is at the low of the day down 240+ points. All of a sudden,the two CNBC personnel get extremely excited on reports by Reuters that the Obama administration has a plan to fix the toxic asset crisis. The male anchor person starts asking for charts to show the bank stocks, home builders and the S&P 500 charts to show how they’re coming off their lows. The man starts acting like he hit the lottery. Unfortunately, this part is not in the CNBC tape. They pick up by asking the two scheduled guests what they think of this news. Both pan it at first but the anchorman keeps asking isn’t this positive and tells why to the point where you can obviously see both guests decide to agree so they can come back again.

The first guest was bang-on in his notations the market was at critical support levels and give him his due, he felt if they hold it could lead to a bounce. He was right on both accounts. As sure as I know morning follows the evening, a break below 800 on the S&P 500 would have led to a massive sell off. Even the anchor lady notes if it closed below this level on Friday, it would be the lowest close in 15 years. You can only imagine what ramifications this would have meant tomorrow and into next week. But that’s all we have now, imagination as “magically” the DJIA rallied over 200 points in one hour on news that has already been out there as one of the ways to handle the crisis (and IMHO, was not “new” news). We should hear lots of “how well the market came back,” just like we have since it topped out above 14,000. The results should be the same in a matter of days or weeks.

Score one for the PPT. If only the NY Jets could turn things around like this.

U.S. Treasuries

Hold short positions on 10 and 30 years and add if the yields for some reason drop 10%+ from here.

Precious Metals

Have greatly outperformed base metals for most of the 2+ years I’ve called for this. Gold is really shaping up nicely. Bill Murphy had a great chart yesterday on gold. While we’re a little overbought and some profit-taking and consolidation is okay, I continue to believe the surprise’s should be to the upside.

U.S. Dollar

Up and down like a yo-yo in a very tight trading range. Some have asked why gold now rallies with a rising dollar and vice-versa. The only explanation I can think of is gold is making new highs in many foreign currencies so on up days in the dollar, gold looks better technically and brings in buying (and vice-versa).

Oil

Some readers are forgetting my original call on going long oil at $36.50. It wasn’t a play for the next 3-5 weeks or months but for years. I stated it should outperform equities in general and so far it has (although going down less is not true good performance). I don’t mind seeing it and the market in general falling as oil-related stocks are among the first group of general equities I hope to buy again someday.

Mining and Exploration Shares

The majors are doing very well and most juniors are off their bottom. I think both can add to their up performance if and when we get above $1,050 gold and stay there.

Geopolitical

It’s been my strong belief that a change in government in Israel is going to turn the smoke in the Middle East into fire. Stay tuned.

Another one bites the dust!

Peter Grandich is Chief Commentator for AGORACOM.com, Canada’s largest online small cap investment community.  Read and respond to his blog at http://grandich.agoracom.com/

-- Posted Friday, 13 February 2009 | Digg This Article

Peter Grandich is the Managing Member of Grandich Publications, LLC (www.grandich.com).
The company publishes The Grandich Letter (first published in 1984) which covers the metals and mining industry, follows world markets and economies, and covers the Canadian markets from an American prospective.

Grandich also provides a variety of corporate finance and development services to publicly-held companies.

Peter Grandich is also the Managing Member of Trinity Financial, Sports & Entertainment Management Company, LLC (www.trinityfsem.com), a Registered Investment Advisor in the State of New Jersey. Trinity provides investment advisory services to individuals, small to mid-size businesses, professional athletes and entertainers.

Peter is a long-standing member of The New York Society of Security Analysts and The Society of Quantitative Analysts.

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