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-- Posted Monday, 11 May 2009 | Digg This Article | | Source: GoldSeek.com
There was a time in my life when I would visit a craps table or two. Based on the money the house had on their side of the table versus mine, I should have chances were they wouldn’t be renaming the casino after me by the time I was done. But I did pick up valuable information that has benefited me in the investment world.
The first thing I learned was despite the game basically offering almost the same odds whether you bet on the shooter or against them, the vast majority of players bet with the shooter. Why? Because our nature is to be part of a crowd rooting for the same thing versus betting against the crowd. Just stand by a craps table and you will see not only how camaraderie develops among those betting on the shooter, especially as he or she makes passes and numbers, but how that crowd reacts to anyone who happens to be betting against the shooter. Another factor that usually develops is as those betting on the shooter win more, they not only tend to bet more, but also make certain types of bets they otherwise wouldn’t if the shooter wasn’t “hot”. Yet another factor is the small minority of players who bet against the shooter, tend not to pile on when they’re winning like those who bet on the shooter. They also seemingly stop making their bets far more often after a few losses than those betting on the shooter. So what does this have to do with the markets? The vast majority of individuals and professionals go long. The 1990s gave stock market players an unrealistic belief that being long or wrong was the way to play the stock market. That “fable” has since been destroyed or has it? After two months of a virtual straight up move, the “Don’t Worry, Be Happy” crowd has managed to gain the ear of the market by playing the announcers voice at the end of the U.S. versus Russia 1980 Olympic hockey game who said “Do you believe in miracles”? This has rallied the troops after 18 months of near full retreat and given them an air of confidence not seen in quite some time. Whether or not the dice are hot again for the long side is not the issue before me, but should I make the classic craps mistakes of allowing all my bets to ride only to hear that inevitable call from the stickman - seven out? I think the answer is clear for me - Color in (the craps table terminology whereupon a player places their chips on the table to cash out and leave). U.S. Stock Market - It’s been an incredible 18-month ride for me. I managed (somehow I think the man upstairs had a hand or two in it) to recommended selling everything (except precious metals) just two days before the all-time high in the stock market and to short the market itself. Then, just one day before this incredible rally began, I left the bear camp and forecasted a rise to DJIA 9000. I say this not to pat my own back, but because such a feat is playing an important part of the following advice - it’s time to cash in some chips.
While 9000 is still a bit away, I’m reminded of my craps theory and recall what ended up happening to me when I let it ride. Yes, to many now the worst appears over and I’m not going to argue with that (at least at this moment). But looking out past the next couple of years, the future socially, economically, politically and spiritually scene here and abroad looks the scariest ever. I will discuss this at another time but by taking the following action now, I believe I’m doing the best possible strategy for those who have been following me given current and future anticipated conditions. The following open positions are recommended for sale on the opening Monday morning:
DXO
OIL
HOU
IYE
XLE
HEU
IEO
XOP
PHO
XFN
COSWF
GMF
EWH
The thought process on this recommendation is as follows: - We’re way ahead of the crowd in terms of investment return thanks to the actions recommended since the all-time high in the stock market. By locking in these gains, many of them equal to or surpassing the average gains from the bottom in early March (I’m also getting rid of a couple of bad oil related choices), we should be in the catbird’s seat for whatever lies ahead.
- We still have exposure to oil and the higher prices I see in the years ahead (more in the oil comment) but lock in some great returns from foreseeing oil at a bottom in late December.
- I can continue to be a scale-up seller if the market manages to get to, or rise above 9,000. (There’s a possibility it can get back to 10,500, a factor I’ll discuss as we move forward).
- We simply have gone too far too fast and when the correction of this near straight up move comes, it should be sharp and fast. We’ll be in a position to increase exposure again if warranted.
- There were a couple events this past week that few paid any attention to other than a passing word or two. I’m speaking about the sharp selloff in the dollar and bonds (more later). These events may not end up important now, but I think they will play a critical role in the very ugly picture I see out past the next 24 months or so.
- One of the smartest and most gracious persons I ever met in this business was Kennedy Gammage (old FNN fans will remember this extraordinary gentleman). Besides treating me like a son, he enthusiastically poured out his wisdom on me (the broken glass soothsayer saying I use comes from Kennedy). One of his many great sayings was, “You’ll never go hungry by eating a half of loaf of bread.” Translation- taking profits is never a bad thing.
- The positions and markets exposure my model portfolio still holds appears appropriate IMHO.
Remember, there are bulls, bears and pigs. The bulls and bears will each have their day but the pigs always end up going to the slaughter house. Oil - Back in late December when I turned bullish on oil at $36.50 and throughout its rise (until most recently), most professional and individual investors were bearish on oil. My target back then was $60 and while we’re not quite there yet, given the reasons above and the factor that I wouldn’t rush out to buy oil for the first time today, I think it was smart to take some profits off the table. This doesn’t change my long-term view that Peak Oil is real and evolving as we speak, but based on my reasons above, this move is being taken.
U.S. Dollar - One of the rarest technical formations we get to see is a diamond formation. It’s one of the surest formations when broken. I believe the break to the downside is yet another signal that the dollar is a “dead man walking”. Don’t be concerned about the next day, week or month’s trading but concentrate on a long-term outlook. The fundamentals are terrible for the dollar, especially since “Helicopter Ben and Dollar bomber Obama have combined to create the most massive creation of paper money in modern history. Ironically, this can be good for the stock market at first as the liquidity has to go some place and rest assured, the “Don’t Worry, Be Happy” crowd will do its best to steer it into the market. The problem is not if, but when, the dollar is devalued and eventually replaced as the world’s currency. I continue to love the Canadian dollar and I’m more confident than ever on its eventual parity to tired and poor Uncle Sam. U.S. Treasuries - My no-brainer pick for 2009 is not failing me. Both the 10yr. and 30yr. have broken down technically and the fundamental outlook, thanks to our massive debt binge and dying currency, should make my target of a doubling of interest rates more likely now. Precious Metals - While Platinum and silver are doing well, gold remains trapped in a trading range. Until it breaks out or down, we should just leave it alone. Base Metals - They, too, have risen too far too fast but shouldn’t correct as sharp and fast when the stock market does. A healthy 10% correction would be a great buying opportunity. Please Note - I took profits in some foreign equity markets but believe they will do better than the U.S. One of the possible strategies in the future if our market gets as high as DJIA 10,500 or so would be to short it and go long certain foreign markets. Stay tuned.
-- Posted Monday, 11 May 2009 | Digg This Article | Source: GoldSeek.com
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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