March 20, 2008

So the Dow went up 2.2% today, returning 5x in ONE DAY what the US 3-month T-bill is paying (at 0.47%) in a YEAR. So is going to cash the wrong move?


The Dow is down 1,000 points and 7% in dollar terms year to date, and down SIGNIFICANTLY more when looked at in Euro or Yen or Gold or Oil terms. Being in cash so far this year you'd be MUCH better off than being in stocks. Especially any stock that had ANYTHING to do with the REIC.

But the past is in the past. Right now the bond market is SCREAMING cash and safety. Even commodities are in total melt-down mode the past few days as investors move to cash.

So, what to do? Stick your neck out, close your eyes, and buy the market? Or put it in cash, knowing that the Bear Stearns "acquisition" will be kabashed, that the Countrywide "merger" will fall through, and that Lehman Brothers, Fannie Mae, IndyMac, CIT Financial, Washington Mutual, Freddie Mac, First Fed and so many more are all looking straight at the abyss?

Will Manias, Panics and Crashes get everything right except the "get to cash" final chapter? Will this financial unwinding be different than every one of them to have ever come before?

These are dangerous and unsettled times HP'ers. But they're also opportunistic times if you play your cards right or get lucky.

So what will you do?

The final phase is a self-feeding panic, where the bubble bursts. People of wealth and credit scramble to unload whatever they have bought at greater and greater losses, and cash becomes king.

46 comments:

greyhound said...

I closed my SKF and SRS positions a few weeks ago. This afternoon I tipped my toes back in with SKF and have started to accumulate a longer term position with SRS. This is not over and still has a while to play out. Patience friends patience!

Buzz Saw said...

There is no "smart money" anymore. It is all "dumb money".

Anonymous said...

Keith said...

So is going to cash the wrong move?

You know good and well that the market is going to go up and down depending on the cash that is thrown at it by the Fed. It took years after the crash of 1929 for the depression to really gear up (about 1931). Perhaps if we didn't panic on a daily basis here and make dire predictions we would be better off. It has taken 2 years for housing panic to arrive. It is going to take a few more for the depth of our depression to be understood by all. We have a front row seat here. Get your funds to safety, gambling on the unknown is foolish and eat popcorn. Relax.

Anonymous said...

Being in cash so far this year you'd be MUCH better off than being in stocks.

Um, so what? Someone might have made similar statements about being in AAPL, GOOG, or whatever over many 3-month periods last year versus gold, which would have proven - absolutely nothing.

Going to 100% any asset (including cash) is unlikely to be a great investment strategy over time.

So, yields on safe bonds have gone close to zero - what does that tell you? Yep, it tells you what everyone else is thinking. 2-3 years ago everyone else was thinking housing was a great buy.

Anonymous said...

Cash is safe but you gotta love this volatile market. I am 75% cash and 25% playing the index with shorts and longs.

When the DOW is up around 12,500 I short with DOG or DXD. When the DOW is down around 11,600 I go long with DDM. Of course I have a hair trigger ready to sell. But don't sell too soon because volatility seems to bring the market back to these ranges.

I also am shorting commodities with SDM when it goes down around 38.

This is great fun but one must be very careful and patient.

mrconservative said...

I'm going to listen to the initial advice of my financial advisor: "focus on building pillers of wealth."

Right now, I have about 33% in equities (401k,ROTH,SEP) and 66% in cash.

Moreover, I moved 80% of my equities into bond/income funds and these funds have been stable whereas my growth fund is down 15%.

and, because the geometric mean -15% and 15% isn't 0, I'm pretty happy with my current allocations.

obviously, if I moved everything into my growth fund now, I might capture the full 11% if it recovered;

however, I expect this summer to be rough since the "geometric mean" won't be kind to the teaser rate mortgages so I'm staying put under the assumption that i'm better off than others.

mr big said...

Stick your cash under the mattress and f@ck the banks.thier measley 3% is a total slap in the face.I would rather lose money under the mattress, F@ck em all.Don'teven waste your time in treasuries.Walmart has a 2% yield.

Budvar said...

Keith, the best thing *YOU* can do with *YOUR* money is stick it in the building society and have done with it.

I told you to buy PM's when gold was under $600. I said buy the metal, but you had to f*ck around with ETFs. The price of gold drops 3 bucks, and you're selling. Between the buy/sell spread and commissions, you can't possibly have grossed dollar one.

You clearly haven't the stomach for volatility, and why you bother I don't know.

I bet you wish you'd hung on to your gold now don't you?
Gold and especially silver is the way to go, and as I said earlier buy the metal.
When it comes time to sell, it's not quite as easy as clicking a mouse, Yes Gold and silver have taken a bit of a drubbing this week, but it's still up by about 14% since the begining of the year. It's all been paper sales, nobody's selling the physical, FFS you can't buy physical silver anywhere at any price in any quantity.

The fundamentals haven't changed, it's all about the price to earnings.

Remember the proposed IMF gold sales?
The Ruskies and the Chinks both said they were both in favour of the sale, and that they would buy the lot.

Mines and bullion banks are short about 10k-12k tonnes, why do you think pressure has been put on the IMF to sell their gold holdings? With the Rushies and the Chinks saying "Yeah, we'll take the lot off your hands", what odds do you give that the proposed sale will go ahead?

geeski said...

i moved all my 401k balances to cash last december. got tired of the constant gyrations of this bipolar market that is clearly addicted to the fed. i am glad i did. even though this is a short term move, i am exactly 16.89% ahead than if i had left things untouched. granted i am making very little, but i avoided huge losses. just wondering when we'll know it is the bottom, and then i will reallocate back to equities, bonds, and some cash.

Anonymous said...

I hate Paper anyway,and would just rather not support the Banks ,and all their killing to stay ontop.ETFs were given the blessing by the fed for the reason that they could have a bit of control.Control is accomplished by mere entries on Paper.Shorts ,and Longs unless experienced keep getting killed,and a major chunk of those transactions go to the Bank.Physical gold,Buy the dips,and I love these big corrections in a bull market. The Gold bull is stable in the face of massaive central bank dumping,and large corrections are not new.No Taxes,no record,and no confiscation unless all three are at gunpoint inwhich it becomes armed robbery even if by the"authorities".
Shakster

Anonymous said...

How is being in cash a good idea when the US dollar continues to fall off the edge of the cliff? Unless you're talking about Euro cash that is.

mreynolds said...

I am surprised you have not mentioned the drop in commodities today.

Anonymous said...

The whole house of cards is coming down and hard. 2% of the population is doing really well, the rest are screwed. It will be a global depression, no more Chinese junk, no more housing, no more Home Depot. Zip.....Nada.

Head for the hills with gold and a gun its gonna get ugly.

Batman said...

Yeah, all that, not to mention this show isn't over yet. How could it be? Look at the fundamentals.

james said...

I took about 20% bath this week on short etfs. OW. Now, the question is do i hold those, or sell, eat the losses, and move into normal investments? I still think were fucked. But the feds games has changed my timetable.

Anonymous said...

F*ck the Greater Depression!

Bring the shit on!

Mark in San Diego said...

Thanks to this and other blogs, I got rid of all bank and finance stocks years ago, and concentrated on oil (exxon,chevron,etc) and utilities. . .I also have tankers, pipelines, and Swiss/Canadian/Euro funds. . .I haven't moved one penny out of the stock market (except a quick swing trade on Chevron to make a quick buck). . .I live on dividends, and so far 7 out of my 42 positions have INCREASED their dividend in the past 6 months, none have lowered their dividends, and my Canadian funds pay larger dividends because the CD went from 85 cents to parity with the USD - so when they payout, I got a 15% increase. . .I "lost" 8% of fund value vs. 20% correction of the DOW. . .so my Beta for my fund is low. . .as you can see - I am a buy and hold guy. . .I might end up being proved wrong - BUT. . .NEVER fight the Fed. . .

Anonymous said...

Get to Cash or short the market. I am getting killed here boys, but am sticking to my shorts.

My portfolio has dropped over 10% in the last 2 days. What a bummer.

Expecting a nice dive on the DOW and sticking to my shorts.

Dny

Anonymous said...

Buy GOLD it dipped to 900 today. Where do you think rich people are going when this unwinds globally. They are going to GOLD.

God Help us All

SeattleMoose said...

Seems Wallstreet is like a junkie who needs the monthly shot of interest rate cuts to keep from slipping into a coma. Problem is the "needle" doesn't have much more "juice".

Trying to "time" buys/sells in a market like the one we have now (in everything) is suicide unless you are 100% certain....

At this stage "wealth preservation" is more important than "wealth gain".

3/4 Cash, 1/4 stocks/bonds.

Minimize your exposure to volatility......

Don't worry about the Euro.....Europe will be feeling big time pain very soon. Their banks screwed the same pooch that our banks did.

Anonymous said...

NO! Don't BUY! Cash is still king! This is merely a head fake.

See this fantastic clip as to why:
http://www.cnbc.com/id/23728596

Anonymous said...

I made a few postings this week on the value of the Dollar coming back. I am pasting more proof of this to come. The diversity and dependency of other nations on the American economy is one factor HPers have not factored in.
It is only a matter of time before Europe and other nations begin to cut interest rates as fast as Bernake has been doing. The Dollar will be back don't let the doom sayers say otherwise!

Follow the link for proof:

http://tinyurl.com/ysok24

happy homeowner in the stix said...

Is this a day trader blog now?

Anonymous said...

When the DOW is up around 12,500 I short with DOG or DXD. When the DOW is down around 11,600 I go long with DDM. Of course I have a hair trigger ready to sell. But don't sell too soon because volatility seems to bring the market back to these ranges.

Rigged channel trading is being done to lure in sucker foreigners.

Remember that pigs get slaughtered and liquidate everything to cash ASAP!

Paul E. Math said...

Schiff said that he believes in deflation. But his deflation is relative to real money, not paper that can be printed by wall street's bitch.

So the price of everything will decline relative to real money (metals) or relative to strong currencies like the Swiss Frank.

I think that if you interpret 'the bible' (manias, panics and crashes) as meaning 'real money' when it says 'cash' then perhaps it's accurate.

When it says that people of wealth 'will sell anything of value' it means they will sell any non-portable asset, anything that could not function as 'real money'. So people will sell art, real estate, stocks.

Bernanke is a really smart guy - look at all the creative ways he has already come up with to add liquidity to the system. Paper money will become more and more worthless and real money will become more and more valuable.

Refuse to buy overpriced said...

Will Manias, Panics and Crashes get everything right except the "get to cash" final chapter? Will this financial unwinding be different than every one of them to have ever come before?

YES!

The bailout is skewing everything and making rational investing impossible.

Have you seen the March 24, 2008 Business Week? I have never seen such a shameless, brazen demand for government intervention to prop up bad investments.

On the front cover:
What's the Solution?
Bail out Homeowners
Rescue Investors
Prop Up Banks
All of the above?

How about NONE of the above, you thief!

On page 41 they praise Fed policy, but note "It does nothing about the central risk to the U.S. economy: an unprecedented crash in home values that is . . . putting an enourmous strain on the banking system."

On page 42 they attack housing blogs - "The airwaves and blogosphere are alive with people who say nothing should be done. They argue that intervening now would only delay the inevitable liquidation of credit-fueled excesses. 'Under proposed bailouts, responsible people lose and have to give their money to gamblers, liars, and sleazy lenders,' says the widely followed Patrick.net housing blog. But . . ."

On page 46 there is a not-too subtle demand for President Bush to go along with the bailout, if he doesn't want Wall Street to throw its weight against Republicans in November. "A Grand Old Problem For the GOP: . . . Even as economists on Wall Street and elsewhere are clamoring for more agressive policies to reverse the slide in the housing and credit markets, the Bush Administration has largely rejected those calls. Yet if the White House fails to bolster the economy and alleviate the worst of the foreclosure crisis, the electoral prospects for Arizona Senator John McCain and other Republican canidates could grow dimmer by the day."

The entire magazine is basically Wall Street's declaration of war on savers and the next generation of home buyers. They demand that future buyers pay through the nose, to preserve the value of their homes and their stock portfolios. What they are proposing will be America's first step towards becoming a kleptocracy. It is really that serious.


Please comment on the text of the following petition:

NO MORTGAGE BAILOUT!

We are outraged that Congress and the Federal Reserve have implemented a series of measure designed to prop up home prices at their current artificially high level - with little apparent concern for the resulting inflation or the cost to taxpayers.

A house is not a government guaranteed investment, it is a place to live. Like water, food and clothing, shelter is a basic human need. When a basic human need becomes more affordable for the working citizens of this country, that is a GOOD thing. Houses are currently in the process of becoming affordable again for responsible first-time homebuyers. The government should welcome this development, not intervene to stop it.

We were dismayed when rampant speculation, enabled by low interest rates, drastically increased home prices. A climate of fear and greed was deliberately fostered by the real estate industry - "but now or you'll be priced out of the market forever / buy quick, its not too late to get in on the easy profits." During the price run-up, home prices were increasing much faster than household incomes. This was an obviously unsustainable situation.

Unfortunately, reckless lending practices kept pushing prices higher after homes had become unaffordable. Loans were given to buyers who made little or no down payment. Loans were given for amounts greater than the income of the borrower justified. Loans were given without adequate income verification.

Lenders and mortgage-backed securities investors are now experiencing the predictable results of their own extreme folly.

Those who hoped to profit from the real estate bubble shouldn't now expect society as a whole to bail them out. Accordingly, we hereby petition you:

1. Do not spend our tax dollars to assist borrowers, lenders or investors who made unwise decisions.
2. Do not let inflation and low interest rates destroy the value of savings accounts. Many future home buyers are prudently saving their money for a substantial down payment.
3. Do not ignore the justice of this petition in the name of "the economy". An economic slowdown is temporary, but injustice will permanently tarnish our society.
4. Above all, do not in any way attempt to prop up home prices at the current artificially high level. This will reward speculators at the expense of an entire generation of future home buyers.

Anonymous said...

My manic-depressive cousin
D. Stockman came by earlier today. He was really excited and happy. He had grandiose plans and was going to get started on them tomorrow.

I was happy because his mood was all over the place, up and down over the last six months. I'm really glad that he has it all together now!

Anonymous said...

Gold down, commodities down, Wal*Mart at 52-week high.

Didn't I warn you?

Anonymous said...

Excellent take on recent volatility:

http://tinyurl.com/1w56

It's just noise. Filter the noise and the underlying signal is very clear.

Anonymous said...

Cash is good. SKF is better. We are in the 4th inning.

NME said...

Sell property, equities and buy into the current and any future weakness in oil, gold, silver, agriculturals.

I'll be visiting my local bullion dealer on Tuesday to add to the stockpile. I recommend buying small bars - 1oz - which will be highly liquid even when the price hits $3k/oz.

The biggest benefit of bullion is that you can trade it for cash. Both me and my wife are in the highest tax bracket and pay a fortune every year. But what I buy and sell for cash and keep in my own home isn't the government's god damn business.

Anonymous said...

2.2% a day?

That's NOTHING!

One time in Vegas I made 100% in just a few seconds!

Uhhhh by the way can I borrow $5?

Anonymous said...

I am assuming when you say cash you mean in FDIC insured accounts .
I have been into cash for 2 years now .
The stock market is making me sick . A stable stock market would not make the kind of moves its been making .If the stocks are under priced they haven't proven it to me .

You watch some time ,on the days the stock market is going up ,they than report the bad news . Than the next day when the stock market is going down ,than they report the good news .

Smoove D said...

Most of my 401(k) in cash, with some in various mutual funds just in case I'm wrong. Brokerage account mostly in cash, was shorting homebuilders for a while. Got tired of getting stopped out every time Big Ben opened his burrito hole and switched to puts. Ate it hard buying puts on homebuilders, a bank, and a brokerage when the market was dropping right after the less than 1 percent rate cut. Got out the next day, and watched them all rally today. Money management is key in this environment.

Anonymous said...

There will be a certain point when all bears would be wise to become bulls. Perhaps we are there.

For each of us that does the right thing (daily), works hard, improves ourselves, remains honest, and invests wisely, we make things 'more' right.

If cash pays nothing, equities pay everything. It is time to be short cash and long stocks with little debt and strong international presence.

Anonymous said...

HPers... I posted the other day asking for help about what to do.

I sold GLD today. 15% ROI. I was nervous... will buy again it drops further.

I bought more long puts. BDK, CCL, STT, RL, JOE. (about 10% total on my money)

I think the market will drop.

The rest is in cash (unfortunately US dollars). I have speand across 7 banks for FDIC.

I think we going to hit a crash day. Soon.

Invest accordingly.

Keith, your blog is invaluable. Thank you.

You freindly neigborhood Sandman.

Anonymous said...

anon said -

There will be a certain point when all bears would be wise to become bulls. Perhaps we are there.

For each of us that does the right thing (daily), works hard, improves ourselves, remains honest, and invests wisely, we make things 'more' right.

If cash pays nothing, equities pay everything. It is time to be short cash and long stocks with little debt and strong international presence.

----------------

2 words

Death Wish


or


False Hope.


The latter is better :)

Anonymous said...

"But the past is in the past. Right now the bond market is SCREAMING cash and safety"


Keith, Keith, Keith. You just don't see the reality of it.

The "market" doesnt set treasury interest rates. The FED does. The "market" isn't saying anything.


The FED can and does make treasuries any rate it wants. And right now it want an ultra low rate so that people put their money in other things like stocks and houses.

Anonymous said...

im just going to continue saving in strong currencies, the dollar long term is basically shot. I have some stocks but they go up and down too much. and I continue to buy gold in small amts.

Anonymous said...

"There will be a certain point when all bears would be wise to become bulls. Perhaps we are there."

I totally agree with this comment. I've been an HPer for what seems like ever but I'm starting to disagree with the premise that everything will collapse.

Maybe this would happen in a world where the dollar is tied to gold, the government doesn't intervene at the first whimper of the market and financial instruments are not as complex as today, but I believe we'll weather this storm.

That said, think of the pain that's already happened. Dollar is almost 1/2 the value in Euros it used to be, commodity prices are very high and banks are taking it in the shorts, BUT:

1. Banks are recouping losses by the spread between mortgage rates and overnight rates. They also have almost unlimited access to cash via sovereign wealth funds.

2. The dollar slide can't continue much more as it gets to the point where it reduces trade and impacts other currencies a comparable amount. This is a self-reinforcing effect that happens at the bottom. This is further signaled by the fact that we're not far from the bottom of the trading range of historical exchange rates between yen and dollars.

3. The Fed is intervening at unprecedented levels. This may be a function of how bad things are, but I think is more indicative of a more reactive transparent Fed under Bernanke.

4. International growth is still raging.

That said, I do think gold will keep going up in dollar terms, but asian stocks will climb higher and faster. As will US stocks who already have substantial international sales. Consider that a microprocessor from Intel now costs 1/2 as much in dollar terms. It would seem obvious that rapid growth in international trade would lag dollar depreciation a bit, by say 6-12 months.

I DO think there's a little downside risk over the next 5-6 weeks (until official Q1 GDP numbers come out). We are without question in a recession and its bigger than anyone realizes. Once that news hits, it will likely be a -5% to -7% event for the Dow in the shorty term. But then we hit bottom and I'd expect things to really pick up later in the year.

Ola Dunk said...

I am unsure...

I am in Norwegian Kroner, backed by dwindling oil supplies, but we have a bigger bubble than the US and it hasn't really burst yet.

Will Gold and Oil fall in value as demand drops? Will it be a good idea to wait before moving into precious metals and commodities?

This is my dillemma!

Anonymous said...

Sucker's rally, as usual. Huge nosedive of 300 pts next week to fleece the sheep. Nothing to see here, move on.

Anonymous said...

NO! Don't BUY! Cash is still king! This is merely a head fake.

See this fantastic clip as to why:
http://www.cnbc.com/id/23728596


Thanks for posting the video link! His insight makes a lot of sense, especially regarding the postponed bailout.

Anonymous said...

A few topics to ponder:

1. Homedebtor bailout is not happening this year because the Democratic majority in Congress won't be making the life of Republicans any easier before presidential elections. The worse the economy, the better for democrat candidates. Bailout only in 2009, while the pick of resets is in July 08.

2. 3/4 of GDP is dependable on consumers. Consumers are leveraged up the wazoo, facing unemployment, and being hammered by high inflation and less credit.

3. When the bailout occurs, underwriting will be much tougher, thus eliminating most of home buyers.

4. The Wall Street crooks and their bitch running the Fed need to come up with a new bubble quickly because Financials can't produce earnings without one. The reason Lehman and the other suspects had better earnings is because they went to their bitch's window to trade cancer paper for printed money, to make their balance sheet look tip-top and fool the sheep. Fundamentals haven't changed at all.

5. Recessions caused by housing bubbles last much longer. Check history.

Anonymous said...

When will HPers and Renters become Bulls? I'm assuming this is right around the corner.

Will current Home Owners, Realtors, and Brokers ever become Bulls again?

Its the Economic Cycles that I see happening. Ten years from now HPers will be the bitter Owners and Realtors.

Dupes will be running HousingPanic, While Keith will be the NAR Chief!

Hahaha.

Anonymous said...

BACK UP THE FUCKING TRUCK AND LOAD THE PUTS ON LEH AND CIT NOW!!!!!