1-5-09

How to Defy Gravity

Welcome to 2009 and all the adventures it holds. And trust me, there will be many adventures (read: a wild ride in markets).

Sitting on a losing trade or stock? Just wait 5 minutes. Especially if it's a currency trade. The trick is: once you are (back) in profit, take the money and run.

My bet is what we're about to see is a defiance of gravity in the stock market. Nothing but bad economic news is acting like a gravitational pull on the market, but the market doesn't care. It wants to go up anyway. The market wants to go up and the Fed is doing all it can to make that happen. History also states a case for a rebound.

Gravity is no match for such forces. Markets often act irrationally, and we're about to see such an episode is my bet, especially once Obama takes office and we have someone at the helm (from a psychological perspective).

The bigger, longer term picture (within 5 years) is, I still believe, not good. Many people are saying this will all be over by mid-2009 and everything will go back to normal. IF this happens, or it seems to have happened, it will have been achieved by massive government spending (counterfeiting) that will only have once again prolonged the day of reckoning. But, within bear markets, you often get very powerful rallies, and it looks like one is coming.

Speaking of coming back down to Earth, how about we talk about some more basic action plans for 2009...?

Action Plan

1.      Your main income source. Your job or whatever is probably your most precious asset right now. INCOME is the key to getting through this thing intact. It's time to make yourself appear invaluable to your boss! But don't just keep your head down; get pro-active and start coming up with ways the company can save costs and/or make more money. Imagine it was YOUR business for a minute. What would you do? This might not only secure your job, it may well earn you a promotion.

2.      Your back up income source. You need a safety net at least! And at best, it's time to build some capital to pay off debt and then when that's done, to start saving. If you can get through to the other side, cash will be king- you'll be able to pick up quality assets for pennies on the dollar. A HOME BUSINESS is the best way forward here because you don't have to give up your job and it's very low risk.

3.      Slash expenditure. This can take the simplest form such as energy saving. Take a look at your latest bank statement- write down what actually goes out and you may be surprised. Maybe the maid could come every other week instead of weekly? Put it all together and what you think you need to make every month will be a lot lower. Bring those goalposts closer.

4.      Refinance the mortgage. The time for this is now I believe. Interest rates are held low in the US thanks to foreign creditors who are becoming increasingly twitchy about all the counterfeiting going on here. I think there is a brief window to lock in low rates in the first half of 2009 and save massively. If there's an exodus in foreign creditors, rates will be forced up drastically and possibly very quickly.

5.      Don't give up on trading markets. Remember, stocks aren't the only thing to make money on and you can make money by things falling as well as rising. Cash isn't the safe investment you think either. There will be incredible opportunities in currencies, commodities and all number of trades. Markets fluctuate; you can make money from this fact! 

Round Up

Oil - As you know, for weeks now I've been explaining oil was oversold. Just as it was silly to have oil at $147 a barrel (Summer 2008), it's just as silly to have oil in the forties. The world can't function at either extreme. Isn't it interesting how the time when people stockpile gas is when prices are at the peak? This says a lot about herd behavior and how to profit by it. You have to decide if you're a sheep or a wolf.
 
Anyway, as you can see, all it takes is a little trouble is the Middle-East and the price ticks up again. Please see past letters for the case for oil. If oil drops further, it will be even more attractive. And let's not forget that if the dollar is being devalued, oil must rise simply due to the fact that it's priced in US dollars (inflation).

Look, I enjoy cheap gas as much as you do, but I tell it like it is, not how I want it to be. This form of delusional thinking will cost you dearly.

By the way, now's the time to buy a hybrid, not when prices come back!

Gold - The yellow metal is pushing higher slowly but surely. My views on gold haven't changed; it's hard to see how it won't double within a couple of years based on all the global counterfeiting going on. People who are long gold often get disparagingly referred to as 'gold-bugs'. Well, I think people who are long on the dollar are 'dollar-bugs'. Gold has past the test of time. Paper (fiat) currencies have not.

Wheat - Since I first mentioned the case for wheat (oversold like everything else, farmers getting hit by lack of credit etc.), it has risen 25%. However, the market still hasn't woken up to wheat in my view- the shock will come in 2009.

Treasuries - Last time I mentioned the availability of short-selling long-dated Treasuries (government bonds). If you'd have done that, you'd be in the money now (TLT dropped from $121 to $116) and this fall has only started in my view.

Cocoa -  This is still hovering at a 23 year high. I think it's completely overbought based on nothing more than supply scares from the Ivory Coast which only produces 38% of world supply. If you were a contrarian, it would be hard to resist short-selling this.

Currencies -  This year, currencies will be all over the place and it will be hard to lose; a down trade now could well be a winning trade five minutes later! Basically, many currencies could soon benefit as an exodus in dollars takes place.

Stocks -  See earlier commentary. It could be a good time to unload losers. If you wanted to be aggressive, there are plenty of stocks that are still oversold and a lot of institutional money is waiting to be allocated. I think sectors such as oil, mining, infrastructure could do very well. In this market I'd stick to big companies that have low debt and were doing well until last October (as opposed to a company that was already in decline). A company like Exxon is very sensitive to a rise in the market and the oil price and has a lot of cash (I do not hold shares in Exxon).

Until next time,

Mark Patricks

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