Financial topics

Investments, gold, currencies, surviving after a financial meltdown
Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Peak Big Ben?

Postby Higgenbotham » Wed Jun 22, 2011 9:32 pm

So today I got an e-mail from an old friend asking what I thought about silver. He'd never asked me about silver before. That evolved into a discussion about contrarian investing. This is what I wrote back to him:

I like (to invest in) things that are cheap but Big Ben has made everything expensive, even the (redacted) we flush down the toilet and the clothes on our backs. But they don't need to be. At all. Being a contrarian, I'm still looking for peak Big Ben and for the US dollar to be so universally hated that people are even willing to part with it in exchange for stuff like brokerage pieces of paper that say they own some silver that may not exist. Are we there yet?

Maybe, because it sure looks like the boiler room silver fraudsters are working the phones (he had received a cold call regarding silver).

All of my money is in cash with the great majority of the cash parked in t-bills. I've never done that before, but I think peak Big Ben may be in this vicinity.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

RDRUNR
Posts: 60
Joined: Fri Apr 22, 2011 4:51 am

Re: Peak Big Ben?

Postby RDRUNR » Thu Jun 23, 2011 3:09 am

John wrote:In 1945, the lesson of the Weimar inflation, where it took a barrelful
of money to buy a loaf of bread, was very widely understood.


I had the great opportunity to spend 1/2 a day at the Germany History Museum in Berlin and it was amazing. So much history and I was blown away how the Germans were unafraid to admit past mistakes and talk about them. They had a section on the Weimar inflation there and I read what happend from start to end, it was a priceless experience. From what I learned, most do not understand Weimar was just 1 part of the process, not THE process. The German people were hit hard in the US stock market crash of the 30's, then there was huge job losses, stavation, hyper inflation and the rise of Hitler. These poor people had 1 massive system shock after another hit them, at the end of the exhibit you could fully understand how a person like Hitler got into power.


Higgenbotham wrote:...Maybe, because it sure looks like the boiler room silver fraudsters are working the phones (he had received a cold call regarding silver). All of my money is in cash with the great majority of the cash parked in t-bills. I've never done that before, but I think peak Big Ben may be in this vicinity.


Like you, I am in the same position. Most of my cash is in CDN, some in USD (I buy more USD each passing month) and a little in GBP. As you said, everything seems to be inflated above their worth in a reach for speculative returns. I am glad to see QE3 wasn't announced yesterday and the debt celing wasn't raised yet, either will be very bad for the USA.

Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Re: Financial topics

Postby Higgenbotham » Thu Jun 23, 2011 8:35 pm

Higgenbotham wrote:
Higgenbotham wrote:
John wrote:Higgie, are you still heavily shorted in the stock market?

John

I went 35% short late this afternoon.

Now 100% short on the Osama news. My average entry is 5 S&P points under the current price (that means I'm under water on this trade).

Covered all shorts. Thinking about trying again if the S&P can rally for about 1-2 weeks into the 1310-1340 range. I have to be very careful being all in cash not to get swallowed up on these short positions because I have nothing to balance them out anymore.

I had expected turmoil in the February to June time period but the market was much stronger than I thought it was going to be.

Despite this huge rally from 2009 I haven't been ruined - yet. My accounts are about where they were at the 2009 low and about 5% below where they were at the 2010 low of 1010 on the S&P, which was the highest they ever got. That includes covering living expenses, which come out of the accounts.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Postby aedens » Thu Jun 23, 2011 10:18 pm

Good luck shorting a political economy. Shorting is anathema to my mindset Higg
http://www.nanex.net/FlashCrash/FlashCrashAnalysis.html
Today TPTB said no crash zone today.
http://www.traders-library.com/

I will stick to renting stocks.
http://finviz.com/screener.ashx?v=141&f ... ials&r=121
conmom.gif
conmom.gif (17.28 KiB) Viewed 1709 times

Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Re: Financial topics

Postby Higgenbotham » Fri Jun 24, 2011 9:00 am

Higgenbotham wrote:Covered all shorts. Thinking about trying again if the S&P can rally for about 1-2 weeks into the 1310-1340 range. I have to be very careful...


aedens wrote:Good luck shorting a political economy. Shorting is anathema to my mindset...


Two years ago the debate on this forum was whether the Dow would go to 4000 or 1000.

A lurker reading this forum two years ago, formerly the most bearish forum on the Internet that I am aware of, would have wanted to get long and go to sleep. This same lurker reading this forum today, would want to sell all long positions, get short and go to sleep for another two years.

PS This is merely a comment on how a hypothetical reader could interpret forum psychology.
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

aedens
Posts: 4753
Joined: Tue Nov 04, 2008 4:13 pm

Re: Financial topics

Postby aedens » Fri Jun 24, 2011 7:29 pm

I agree and we have managed to preserve capital in extreme circumstances. The content that John and you all have provided
thought's and knowledge that countless University's could never provide. The point I wish to convey is gratitude
that between the extremes I have learned more than any College text book I have completed. The forums have provided countless paths
to solutions and challenged conventional views that many wish not to see. As for being the bear site of course it was but that does
not diminish the over arching theme. Some may short some may go long but that is no matter since it is there money.
Did I make mistakes along the way? Yes I did, but I still managed to preserve capital as we questioned conventional wisdom
from the theme of the Site and will continue to do so since the trends are firmly still in place at large. Along the way I was able to
redirect a few and unable to convince others. When I get time I do review the forums for avenues to effective thought and overall
find this valuable to challenge myself.

Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Re: Financial topics

Postby Higgenbotham » Fri Jun 24, 2011 10:55 pm

This is the big picture as I see it. A multi decade or multi century top in the stock market was reached on October 11, 2007. Up to that point, the tide was coming in for over 2 centuries. Now the tide is going out. When the tide is coming in, most everybody prospers. Idiots look like geniuses. When the tide goes out, most everybody loses. Geniuses look like idiots (see reference to Isaac Newton at the end of this post - thought by some to have one of the highest IQs of anyone who has ever lived). When the tide is coming in, the idea is to save for the rainy days. When the tide is going out, the idea is to preserve capital. Now it might be appropriate to quote a couple things Richard Russell has stated in the past few years.

Richard Russell wrote:Let me put it succinctly – There’s a hard rain a ‘comin’, and now it’s just beginning to sprinkle. Forget about creating profits, our job is to avoid losing purchasing power. ‘In a bear market everyone loses, but he who loses the least is the winner.’”

Once the tide starts to go out, everything gets turned on its head. What used to work doesn't work anymore. And even the opposite of what used to work may not work.

This juncture is more dangerous than anything I could have imagined. The US government has gone up to its eyeballs in debt and has no borrowing ammo left for the real crisis. At the same time interest rates on US government bonds have been falling for 4 months, indicating good demand for US debt as it appears to be the "least worst" alternative. T-bill rates went negative this week, which first happened during the Lehman crisis of September 2008 and is an indicator of the demand for short term liquidity (risk aversion). It means investment pros are willing to pay the US government to keep their money safe, as they see no better alternative but to lose some money by parking it in treasury bills, versus probably losing more somewhere else, which is exactly how this week went.

So far, the decline in the stock market has been orderly from the May high. Back in 2009, it was my opinion that any decline that held the March 2009 low would be orderly enough that the system would hold together well enough for shorts to get all their money out. Now I'm not so sure. I don't think the flash crash was a one off event, and what if the next one lasts 3 times as long and goes 9 times as far? I see no reason to think that can't happen. So part of what goes into my thinking is that if the S&P can't rally over the 1310 level from here, I am risk averse to the point that even if I think the market could crash from right here (which I sure do believe it can) there's a high enough chance that the shorts won't get paid to pull my money out and wait for things to settle down. Like I said in the other post, I haven't been ruined - yet. I have made some money since the 2007 top and would expect there are people here and there who have, despite their real estate holdings being in free fall. But the tide has barely started going out. Within the next 90 days, as I see it, the potential is there for trillions of dollars to suddenly disappear into a black hole.

So, yes, ultimately I do expect those posters from 2009 have properly framed the debate about the eventual resolution of this crisis and I'm not so sure that the shorts will come out of this in one piece even if they are right. That in my view is one aspect of the Priniciple of Maximum Ruin.

http://www.google.com/search?q=%22daily ... 79&bih=426

See Figure 17.1 on page 116 which charts the September, 1720 crash of the South Sea Bubble.

http://en.wikipedia.org/wiki/South_Sea_Company

Earlier in the year John Blunt had come up with an idea to prop up the share price—the company would lend people money to buy its shares. As a result, many shareholders could not pay for their shares other than by selling them.

Joseph Spence wrote that Lord Radnor reported to him "When Sir Isaac Newton was asked about the continuance of the rising of South Sea stock… He answered 'that he could not calculate the madness of people'."[4] He is also quoted as stating, "I can calculate the movement of the stars, but not the madness of men".[5] Newton's niece Catherine Conduitt reported that he "lost twenty thousand pounds. Of this, however, he never much liked to hear…"[6]
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Re: Financial topics

Postby Higgenbotham » Sat Jun 25, 2011 12:57 pm

This is how it starts. It's how trillions in junk money can end up being sucked into a black hole. I've talked about this many times (way, way too early) and this article sort of explains the nuts and bolts of what happened last week in reality. As I stated back in 2009, if a money market fund is contaminated with junk money and investors flee the whole fund there may be worse problems than if the various subsets had been left separated. Reading a few money market fund prospectuses will clarify this. Prospectuses are those things people get in the mail and throw away. In good times, it's possible to throw some junk money into a money market fund and the whole batch smells pretty good to everyone. It's similar to the problem encountered when batches of various mortgages are brewed up. The difference is the valuation problems hit real estate first and now they are hitting some of the debt markets.

http://www.brecorder.com/business-a-fin ... unds-.html
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.

Higgenbotham
Posts: 4400
Joined: Wed Sep 24, 2008 11:28 pm

Re: Financial topics

Postby Higgenbotham » Sat Jun 25, 2011 2:44 pm

In a similar vein, Jim Rickards explains why a relatively small amount of notional credit default swaps on Greek debt can be a big problem.

http://kingworldnews.com/kingworldnews/ ... kards.html

Just before the 11 minute mark, Ben Davies starts to explain European debt exposure in US money market funds.

http://kingworldnews.com/kingworldnews/ ... avies.html
While the periphery breaks down rather slowly at first, the capital cities of the hegemon should collapse suddenly and violently.



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