Here is a man that oozes common sense and wisdom!

Staying Focused on the End Game

Mon 13 Dec 2010 12:41

In the current environment, you really have to think on your feet. I drew a line in the sand between 1175-1180 on the S&P. Given current price action,  I  am closing a portion of  my short-term long trades on strength. Although I am getting out only slightly in the black, I can take solace in knowing that I do have a little more information now. I am seeing strength in the dollar and weakness in stocks. No surprise here. However, I am seeing precious metals holding up into dollar strength. This is a positive development. I am also starting to get an idea of how capital will react to the debt crisis. As I suspected, capital is finding its way into gold.

I’m pretty sure the market will break out of its consolidation pattern soon. If we break below 1175, I’ll probably look to go long again. But for now I am mostly sitting back and watching.

You all see how I trade – I am very conservative and keep losses to a minimum. I don’t take huge drawdowns and I don’t go around gambling on margin to “break even” on losses. This centered and disciplined approach is exactly how I view world events. The long-term investor must always be vigilant of changing trends, which of course are determined by day-to-day events. For the longest time, I’ve been warning you about the likely events of the future, including protests, wars, debt crises, and gold rocket launches. Long-time readers have seen these events unfold, with riots occurring in modern Western nations and the threat of war hovering precariously over us. The gold rocket launch should have most of you sitting on 100% profits on the year. So why are people still listening to the same geniuses who didn’t see either the crisis or the subsequent events coming? I have no idea. To me it’s pretty comical actually.

Sometimes I think I’m living in an alternate universe because so  many people are just not thinking. I would have liked to believe that we could have learned from the past and change course before it’s too late. However, at this point, I am positive we are not going to correct any of our mistakes in time. Think about it: Why is the Fed embarking on QE2 when QE1 fell flat on its face? Is there anyone who can think beyond an elementary school level in government? Are there really no alternatives besides buying government debt directly? If the majority of our government debt is held by foreigners, whose economy are we stimulating?

All these Keynesian “experts” were telling you 2 years ago that government stimulus would jump-start the economy. Now these very same stimulus evangelists are backpedaling and saying the first round of stimulus wasn’t enough! If you are really gullible enough to believe flawed arguments like this, then I am sure you are also gullible enough to buy into this monumental bond bubble. After all, the Fed said everything will be OK. Nevermind the fact that they have misread this crisis so bad that their credibility is at all-time lows. If you are going long U.S. government bonds, you will be wiped out like the dumb money bondholders were during the Great Depression.

So many people are vocal about how the Fed has everything under control and how government bonds will do well. Fine. But whenever I tell these people I’ll take the other side of the trade and to put real money on the line against me, they go silent. When it comes down to it, no one actually believes the BS. Most people are buying bonds to sell to the next sucker; little do they know they are that sucker. How many people thought they could flip homes for a quick profit, only to be left holding the bag? The bond market collapse is going to wipe out so much capital we won’t know what hit us. This will create considerable social unrest in America. When government workers realize their pensions are non-existent, watch out. I welcome anyone to bet against me. Go short gold, go short silver, and go long U.S. government debt. Buy a home and watch the government tax you to oblivion as your equity evaporates. Please, I want to see how brave you are.

In times of prosperity, everyone is an expert in investing. I can close my eyes and pick 20 random stocks and make money. I can buy a home and watch its value rise and boast to my friends how I have such a good eye for value. I can buy a random piece of art and do the same. In times of crisis, you start to see who can swim. I welcome anyone to explain to me how our current leaders aren’t the most inept we’ve had in our history. I welcome anyone to explain to me why the European debt crisis is contained. Someone please point me to a time in history when we saw a snapback recovery in real estate following a dual banking and sovereign debt crisis. Most things I can think of point to a severe crisis in the next 5 years. Projections of $2500 gold are probably going to be on the conservative side.

One of my good friends told me recently how he always tells his financial-type friends about gold. You would think $1400 gold would open some eyes, but his friends still refuse to believe. From my perspective, this is music to my ears. I can confirm such bearish gold sentiment based on my own personal dealings with financial-types. By the time this crisis is over, you will all see who the smart money really is. This is just the beginning. In 5 years, I suspect most of you will be utterly amazed at what develops.