Thursday, August 13, 2009

A rare point in my investing life.....

So here's the skinny. As of today, I am 80% cash in my portfolio. I spent the day closing out all of my open long positions. The only positions I have left are my shorts currently, and I will be adding a few of those over the next 1-2 weeks.

Here are the numbers:

Couer D'Alene Mines: Closed out at $15.65. Taking into account the 10:1 reverse split (entry price of $.61) I have booked a 157% gain since last December

Amorfix Life Sciences: Closed out at $1.00 flat. Entry price of $.30 for a gain of 333% since December.

Silver Wheaton: Remember buying Silverstone for $.45/share back in November? The buyout at $1.80 / share gave me Silver Wheaton at $10.00 - closed out today for $10.92 for a whopping gain of 409% in 9 months!

Uranium One: Despite the fact I think the forward looking fundamentals are very positive on this company, I think it's going to be a hell of a lot cheaper in the next 6 - 10 months than it is today. Closed out at $2.77 for a gain of 31% in 10 weeks

Canfor Pulp Income Fund. Purchased @ $2.20 / share in early June. Closed out today at $3.68 for a nice gain of 67% in 2 months!

Chartwell Seniors Housing REIT: Purchased in December for $3.88 / share. Closed out today at $6.72 for a gain of 73% plus $3000.00 in distribution income during the duration of the trade.

I guess you can say I just had one of those moments last night. I know I have been calling for a top in the S&P 500 for a while now.

But sometimes you just look at the big picture, listen to the sentiment, watch the dumb-money, look at the force and strength of a move like the one we have ridden up in glee, and just sort of stop.

And really look.

And then you have that beautiful moment of clarity where you realize that in the short-mid term there is still so much debt destruction that is going to occur and creditor insolvencies that are going to play themselves out that the market HAS to make AT LEAST one more new low.

In fact, there is going to be so much demand destruction for the next 2+ years that we will probably see a major major rally in the US Dollar and in US Treasuries. So here's the question, then, dear readers - "Gee, Derek, if you've been saying all along that the USD is doomed and worthless and that the US Government is really insolvent and can only pay back their debts by inflation, and NOW you are saying the opposite, you are a total liar!"

Well, just to clarify, no I am not saying the opposite. In fact, I still hold very very firm to the belief that the USD is doomed in the long term and the US Federal Reserve will eventually hyper-inflate the last gasping breath out of the currency whose value it swore to maintain back in 1913.

But that's going to be a bit further out. For now there is still some serious serious deleveraging that needs to be done. And deleveraging leads to a faster fall in asset prices, which leads to a faster rise in unemployment as government maintains minimum wage (the market is actually great at adjusting wage and price levels to perfectly match demand and supply, funny enough!). Thus more and more people are completely out of work deteriorating demand FURTHER driving prices lower and debt costs higher.

So get rid of your debt if you can. For the next couple of years.

Anyway, here's the game plan:

I am going to find a few choice companies and ETFs that I will either short or use Inverse (they make money when the market loses) Funds to play a nice sized crash in the US markets. Probably markets world-wide, to be honest. China is currently experiencing a huge asset bubble that will burst before their own economy can adjust all of the malinvestment caused by supplying economies over HERE racked with malinvestment due to the Federal Reserve and Goverment Intervention in our economies.

I'll post them when I find them!

After this next major leg down, which I think could last over 6 months all on its own, will probably be one of the best opportunities to buy gold and silver and stocks that we will see in the very next long era of investing.

I am holding off additional silver purchases as I think silver may very well touch back down on the $8ish lows that it made last fall with the market crash. At that point I will take a good chunk of the cash I have in savings and convert it to silver savings.

Then we can go value hunting again! My favorite!

Cheers all. Happy Investing and Stay Rational in these times.


Sunday, August 9, 2009

Governments even screw up DEAD BODIES!!! (What is there that they CAN'T destroy?)

Here is a fine example of how regulation instead of market forces absolutely destroy the effectiveness and quality of a good or service.

For those of you who haven't heard, many of the areas of the US where the first wave of the Greatest Depression has hit the hardest (i.e. where the housing boom and subsequent/necessary bust has wiped out the most equity and associated jobs/services) have so many people underwater they CANNOT AFFORD TO CLAIM AND BURY THEIR DEAD RELATIVES.

No joke. Bodies are literally stacked on top of each other in various morgues around the country.

So what do you think will happen as a result? Most likely the morgues will lobby for bailout money and get some hundreds of millions or a few billion dollars to deal with this issue.

I mean, sure. We can go way back to the fact that such huge monetary distortions by the Federal Reserve cause massive sections of the economy to be reallocated toward economic operations that would NOT BE PROFITABLE if the market determined the cost of the money to start those operations. In plain speak, when money is cheap people are a lot stupider with it. Hence the bubble. Eventually way too much of the economy is devoted to these "stupid" or non-economical (not to pun or anything) operations. The shift becomes unsustainable and the market tries to self-correct.

This is the process of creative-destruction.

This is the part where the market takes all of those resources that are not maximizing their output and liquidates them. The resources are then naturally put to where they will be most efficiently productive and offer the greatest return on investment by entrepreneurs seeking profits from their investments.

But the problem is that the government and Federal Reserve have put a stop to this VERY NECESSARY process. What they have essentially done is take all of those misallocated resources (Interest Rate Swaps, CODs, Commercial Property-backed Debt Paper, etc) and locked them in a box. That box being the Federal Reserve's balance sheet. The total of guarantees (and this is completely aside from the despicable and sickening deficit our governments are running) is at around $13,000,000,000,000.00 ($13 Trillion). This is an unfathomable amount of money and basically equals EVERY good and service produces in an entire year by the American Economy!

Until these assets are allowed to be naturally reallocated to their proper place by the Invisible Hand of the market (See Adam Smith for this explanation), this recession will not end. It will only deepen, because not only are governments stopping this process, they are encouraging MORE money to chase these bad assets with housing credits, forced lowering of standards for Freddie Mac and Fannie Mae loans, etc etc.

But anyway, back to my original topic - mass unclaimed dead bodies.

Sounds kind of gross, right? A bunch of dead bodies stacked on top of each other in a cold room. No one to pick them up because nobody has the money to do it.

Here is another example of how the government RUINS something that could be so simple and effective. Because the government regulates the hell out of the practice of burying the dead (i.e. certain coffin types, buried so deep, cement casings in many states, etc), it drives up the minimum cost of a funeral.

On top of that there are so many regulatory conditions, mandated by the state, that must be met just to operate in the business.

Now, if the free market and the free market alone were left to make all of the choices and developments for burial, this most assuredly would not be a problem. Here's why:

If there is a need, there will always be an entrepreneur out there willing to meet that need. People need to be buried, ergo we have funeral homes and Funeral Directors (as they now prefer to be called).

In a totally free market system, these companies offering this service and its accompanying products are in constant competition with each other. Competition causes price fluctuations. It also causes the quality of goods and services to fluctuate. See, if my business' operations are the only thing that can get me clients whose family member I am to bury, you had better believe I am going to have great prices on my services and products, and great quality. I have to beat the other guys offering my service.

This also improves innovation - if I can come out with a better way to bury a body than my competitors I have a unique advantage and will have much more clientelle. If I can streamline the process somehow to make my operations more cost-effective I can lower my prices in turn attracting clients whose budget is smaller and still make a profit.

The shoddy operations would be quickly weeded out by consumers who would be much more intelligent and critically inclined in their choices as the would not have to rely on the "Nanny" (government) to make regulations to ensure things were done a certain way. They best way would win anyway.

The prices would be cheaper overall as the market would adjust to increased demand or supply. This may sound strange in this context but the current oversupply of bodies would cause prices to fall as their is a surplus of goods and services relative to demand.

Then the bodies could be respectfully (and affordably) buried by their families. Then we would have no problem. But because of all of this government regulation and oversight, the minimum price of burial is drive up up up and average people can not afford it, the bodies are left untended and end up getting the "John Doe" treatment. (Cremation with no ceremony and ashes stuffed into a sealed jar). Needless to say their are other effects such as emotional damage (imagine if your husband or wife said the only thing they cared about for when they died was being buried in a certain place and you got a jar of ashes instead!).

In the end, the principles of supply and demand and free markets bridging that gap to a level of perfect efficiency and then innovating above and beyond to improve their competitive position can be applied to any business. Funerals or Popsicles, it does not matter.

Happy trading this week to all! Be prepared to be surprised soon enough....