6-22-09

The "Less Bad" Recovery

Imagine driving around a treacherous road along a mountain ledge and a truck comes around the corner on the wrong side of the road. You swerve one way and you'll go over the cliff, and swerve the other and you'll end up crashed against a rocky embankment.

Last October, the world faced this scenario and thankfully, it was steered away from the cliff. Looking back, our situation now compared to then is far more favorable. We get out of the car and breathe a sigh of relief and even feel somewhat euphoric about the situation.

This is where we're at now and this is what has given rise to all this talk of 'green shoots'. Things being "less bad" are giving rise to unjustified optimism and setting people up for another painful fall.

We didn't drive off a cliff, but the situation is still not what it was: happily driving along the road.

The big problem is that comparisons are being drawn to previous recessions post ww2 when this does not apply anymore both in terms of what's happened and how governments are responding. An improvement year on year can still be a bad number.

This from John Mauldin:
"Shipping containers moving into US ports rose by 2% in April, from March. That was cause for celebration in some circles. Buried way down, if mentioned at all, was the fact that compared to a year ago shipping is down 22%. And year-over-year comparisons have been worse for 22 months in a row. At some point, you get to a bottom. We find the new normal. But if the new normal is down 20%, that is a different-looking economy."

A successful investor must deal with how the world IS, not how they would LIKE it to be. Money flows to those who deal in realities, not fantasies. Those who think objectively, not subjectively.

The wealthiest people in the world became so for the simple reason they were prepared to think 'out of the box'. Throw me the name of anyone who made themselves wealthy by their own means, and I'll explain it's because they thought differently to most people. In fact, they thought the OPPOSITE way to most people.

Yes, things have improved from last October, but that couldn't have been difficult, could it? We WILL recover fully, but what is annoying me (and creating profit opportunities!) is this 'quick-fix' governments have attempted and the subsequent bear-market rally that is suckering so many innocents back in.
A lone world politician stands out as speaking any sense at all: Angela Merkel, the premier of Germany. She is telling other leaders what you and I know, dear reader: that printing money is a one-way ticket to hyper-inflation and will only postpone the inevitable.

Elsewhere in Germany, a private company is putting gold vending machines everywhere called 'Gold to Go'. Like buying a soda!

Why would this all be happening in Germany of all places?

Because the German population is young enough to remember the hyperinflation of the thirties and the trouble it caused.

Unable to pay it's sky-high debts (reparations for World War I), the Weimar government resorted to printing Deutche Marks. This is where stories of a wheelbarrow of cash being needed to buy a loaf of bread came from.

Sound anything like America today?

In Germany, an extremist government became popular. Is that what will/is happening in America now?

Short term, I see a reasonable chance of gold correcting downwards before the final spike up; the classic panic stage of any bull cycle where cab drivers are giving passengers tips for gold-mining stocks (which is also the time to sell!).

This from Bloomberg: "More than one-quarter of American states now have unemployment rates higher than 10 percent, and all but two saw a further job-market deterioration in May. Tennessee and Indiana joined the rank of states, now 13, that have jobless rates exceeding 10 percent, and eight states - - including California, Florida and Georgia -- reached their highest level of joblessness in May since records began in 1976, the Labor Department reported today in Washington."

Forgive me, but if we're going to deal in reality, this doesn't sound much like green shoots to me.

Are you feeling a bit depressed reading this? WHY?!

I'll tell you why: because you believe the only way to make money is if markets go up.

I don't know how many times I've said this, but you can make money from any situation. If you take a short position using options you can make money from falls. Once again, the market is setting itself up for a big drop in the near future.

Everything I tell you here is an honest, objective commentary calling it the way I see it based on the facts and ignoring government and Wall Street propaganda.

The media and the government didn't warn you about last October so why on Earth would you be listening to their "green shoots" bull-crap now??

Beats the hell out of me.


Best regards,

Mark Patricks

 

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