Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Minted vs Printed

By -

I have been MIA since mid December. I am on reserve and I have been flying a great deal the past month and have not had time to post or read too much with the holidays and the flying. I will only post if I feel I have something of interest and value to the readers. Precious metals and miners seem to be consolidating since my last post on selling some of my trading positions.

I have bought back some AEM and GSS ,GDXJ,and junior explorers, but I am waiting for lower prices to get more aggressive on juniors and explorers. Most of these stocks are tiny and illiquid and I will not mention them unless I feel they are quite cheap. Some of them have made new highs in the past few weeks and they are not cheap right now.

AEM is very attractive to me at 53 and lower. I have not bought back SLV or GLD but I have bought some physical including platinum Eagles. I will be a buyer of platinum and the ETF's if they come back to the $1400 area. I will be heading back to the homeland of Minnesota this week to see the family and watch the Vikings game on Sunday.

I hope to do a post soon on the airlines  as I think there will be money to be made on the short side very soon. During my travels the past month things did not look good at all. The hotels and restaurants appeared to be under severe stress with simply heating the facilities a problem. My guess is cost control rather than coast to coast technical difficulties.

I was very happy to see the following in my inbox last week. I was even happier when she told me she had some 1/10 oz platinum Eagles. I bought the Eagles from her and thanked her kindly for taking the time to answer some questions for us. I hope you find this useful and if you have more questions you should call her directly, and if you are interested in physical metal, she can deliver. I am going to get the jump on you and call her now to see if she has any less than 1oz platinum Eagles as they don't seem to last long.

Today we have
been graced with a visit from Kathryn Derbes from KDerbes Precious Metals, LLC –
http://www.kderbes.com/ 

Hi Kathryn, I
want to thank you for taking the time to give us a view on the precious metals
market. 

 

1) Before we get started can you give us your background
and how you came into the business?

After graduating from Vanderbilt in
Civil Engineering, I spent 17 years in institutional investment management.
Although I have never been a gold bug, I started investing in coins in the 80’s.
After leaving investment management in 2003 I decided the time had come to
become fully focused on precious metals. What has fascinated me for 30+ years is
the study of money from a psychological viewpoint, especially the psychology
surrounding events leading to hyperinflation. I read everything I could about
Rome, France, pre-Civil War US and Weimar Germany. Of course, there have been
many more episodes of hyperinflation but those are the ones I initially focused
on.  I’m not saying we are going into that type of environment in the US (we may
but it’s not ordained), but the credit bubble and subsequent debasement of money
by our government was/is the reason I’m trying to get precious metals into the
hands of as many people as I can.

2) Please tell us what you have seen in the recent past
that may be helpful to keep in mind as we look forward from here? 

The
demand for physical gold, silver, platinum and palladium coins and bars has
grown exponentially over the last year+ even though the average American still
has no idea why they should own them.  Since gold can only be minted and not
printed, it seems the supply/demand imbalances will continue to support a higher
price. 

 

3) What are the differences in retail silver and gold
markets right now or in the recent past? 

Retail (average Americans) are
selling scrap gold and silver
for cash. They are not even close to understanding why they need to own precious
metals much less purchasing them for “insurance” against a loss of purchasing
power. At KDerbes we all spend a lot of our time educating people.  How about commercial markets? I assume you’re
referring to institutional investors and central banks. Many institutional
investors were very vocal about their support for gold in 2009. They continue to
buy. The central banks (at the margin), as you know, reversed course in 2009 and
became net buyers instead of sellers. When India bought the first traunch of the
IMFs gold last summer investment demand exceeded jewelry demand for the first
time in recent history.

4) Can you explain the secondary precious metals market
briefly and how it has changed over the years? 

The secondary market had
been the major source of supply for a long time. It makes sense because the
Mints had been producing Krugerrands since 1967, Maple Leafs 1979, Eagles 1986
and so on. Then in late 2007 the US Mint stopped sending silver Eagles, which
would not have been a problem (we sent back dated Eagles to fill in) if it had
been an isolated event. But in 2008 the US Mint stopped sending silver Eagles in
March, and after sending some in May, they delayed shipments several more times
that year. At the same time overall investor demand had picked up dramatically
and fewer people were selling. Now we rely on supply from the Mints more than
ever before.  

 

5) What is going on in the cash for gold scrap market? 

The scrap market is huge. To put it in perspective, the refinery we work
with in Dallas averages $19million a week in scrap purchases, and they are only
one of 12 refineries in the Dallas area. That doesn’t even count the surrounding
areas. A lot of people need cash but they need to beware, there are many
pitfalls in selling your scrap gold. It’s terrible that the public is being
“taken” once again in many instances. I had a hard time (mentally) putting
together a scrap business plan until we designed a “scrap to ounces” program.
That’s because, of course, I believe we need to own precious metals now, not
sell them.  

6) What type of buyers do you see in your shop other than
the odd lotters like myself? 

We are incredibly fortunate that most of our
clients are “sophisticated” buyers in the sense that they understand our current
economic situation, the history of money and gold’s role as a monetary asset.
They buy consistently and look at it as a FX transfer. We also work with a lot
of first time buyers. We spend more of our time educating them on the different
coins/bars than the economic justification for owning them. They generally come
to us when they want to hedge their US$ exposure.

 

7) Can you share any personal investment ideas or themes
that you are using during these perilous times? 

Right now most of them
are related to ideas that will benefit from money printing. I do believe that
fixed income will become a real problem (rising rates) so there’s probably a
good shorting opportunity there but who knows when it will manifest into a
sustained trend. I also have exposure to the Canadian and Aussie dollars.

 

8) Do you use technical analysis into your trading and
investments? 

LOL, yes, but the sophisticated slope traders make my very
limited knowledge of technical trading look like pre-K. Maybe I’ll graduate to
kindergarten this year if I’m lucky. I do love my candles though, my futures
broker does a good job at short-term support and resistance levels and the
seasonals are always interesting to review.  I
never trade my physical positions although that may change if we get back to a
sound currency (don’t want to go over the waterfall if things change). We’ll see
how our economic future unfolds. Miners I do trade a portion of my positions
while keeping my core positions in place, unless, of course something changes
with them fundamentally then the entire position get sold. 

 

9) Do you have a technical view in the short term vs
longer term?

The slope gentleman and ladies would know far better than I
would about the short-term prospects for all the precious metals. Long-term I
really believe we will go higher unless and until sanity comes back to the Fed,
or we abolish it and throw out the serial destroyers of wealth.

10) What if I
currently had no exposure to precious metals, but was trying to possibly get
into the market, what advice could you give me at this juncture? 

Put a plan together and implement it
systematically. We help people do that
everyday.  Think about the potential cost of not doing anything vs. doing
it. 

11) And if I had been carrying a very heavy load over
some previously treacherous terrain and it now appears that the promised land is
in sight? 

Every day I become more and more convinced we will have a real
problem with the US$ in the not too distant future. If that actually happens it
should keep a bid under the price of gold. As we all know, though, anything can
happen so it’s best to stay tuned to the events everyday and see how it all
unfolds. There are very few promised lands and fewer clear paths to them. We’ll
see.  

 

12) If a SOH trader wanted to diversify her petty cash
into gold could you get 10,000 ounces? 50,000? 

We could and we have but
it would take at least a week or two to get the ones they wanted. At this time
of year (early January) it would take longer as many of the 2010’s have not
arrived yet. You could always take delivery off the Comex but remember if you
then take physical delivery (vs. leaving them in a Comex approved depository)
they will have to be melted and re-assayed before you can sell them. I’ve done
it but it is a process.

13) What would make you outright bearish on precious
metals? 

1) Paul Volker takes over the Fed from Ben Bernacke, 2) Congress
aggressively LOWERS taxes on businesses and individuals, 3) The “government”
stops lying to us on the statistical information (CPI, employment numbers, etc.)
that they produce and disseminate, 4) We have term limits and tort reform…..
 

14) Do you own any miners? 

Yes, I have a small
portfolio of less than 20 names.

 

15) Do you own majors or juniors or a combination? 

Both, but I like the juniors more at this point. You have to really know
them and stay close to what they’re doing. Many will not make it for sure but if
they do they could explode. That’s a big “if”.  

 

16) When I first
spoke to you about doing a post on SOH, you visited the site and mentioned
surprise that folks as bearish as we are, seemed to view precious metals in the
same light as the stock mar

ket in general.
You were surprised that they did not seem to like gold much. What are they
possibly missing other than another anti-dollar pairs trade (SPY and Gold =
virtually the same thing) and what are the risks if any to very succesful SOH
short term traders by not having precious metal exposure? 

Well, they all seem incredibly accomplished and most seem
to have reached the pinnacle of success, so for me to tell them they are missing
something seems like I would really have my Indians (me) and my Chiefs (slopers)
mixed up. 

It’s
difficult to understand the gold market because for most people gold seems like
just a price. That’s because it’s hard to value based on corporate metrics like
PE, price/sales, EBITDA, etc. So it’s hard to get your head around what it’s
true value should be and what price you should pay for it. Looking at it in the
macro (vs. bottom up) is easier but still leaves a lot of questions. Truthfully,
it is more than just a price. There’s a lot behind it but you have to seek out
the information from non-traditional sources. 

It
is a true honor to have this opportunity with the SOH readers. Thank you always.

Discriminate Selling (by cccactii)

By -

The past week or two I have been forced to lighten my precious metals load due to the pricing slope- straight up. I made it through the summer and fall fully loaded with  (never to be recommended) well over 50% of my net worth in the form of physical platinum, gold, silver, miners of such as well as  GLD and SLV positions. This summer as we approached the $1000 gold level the psychological fatigue of riding the bull so long began to set in. I had a full position last year and kept it through the plunge and was fortunate to buy a decent amount near the lows. It was not easy to see my way through that summer fear fatigue fully loaded. I simply became worn out from worrying and decided it would be best not to care about a potential 10-20% pullback. I have sent unnecessary put premiums to heaven during this time.

From September until the present time it was much easier to have such a large position psychologically as I was being validated by price almost daily. The past two weeks I have sold roughly 20% of my paper metal positions and miners. I will not be selling any physical until the populace at large has fully embraced the idea. I do not believe that to be the case at this time. Today was a pivotal day for me as I sold a nice chunk of my GSS and other miners and ETF's. It did not feel good and was done with regret and a sense of caution. I was watching GS (for several days), BAC, DXY and metal and keeping the recent vertical metal price action in my mind as I finally pushed the sell button, and then actually bought some ZSL and some GLL puts. I have been short precious metals only two or three times for very brief periods the past nine years. I did not wish to sell any more metals but wanted some more short term protection as I sense intense pressure in all markets that will likely be relieved via risk reduction if only temporarily. We all need a rest and selling tends to put one's mind at ease.

The recent action in AAPL,GS and the financial sectors recent under performance will pressure stocks and funds may want to lock some gains in for the year. I also believe that sovereign risk is not priced into markets and the dollar may get a stealth bid from that unknown fear. I am positioned for a non-seasonal dollar rally over the next several weeks with UUP Dec and JAN 22 and 23 calls. This idea has yet to work. I am long puts on SPY, IWM, retailers, EWW and a smattering across various sectors that have not yet shown any promise.

There appears to be some regrets these days about not having enough metal or miners. Slowly scaling into positions has worked well for me and the more patience that I have the more it seems that I am rewarded. This is particularly true at the point of purchase. If you like gold at $1100 you should love it at $1000, be enamored about it at $800 and absolutely captivated with a 6 handle. As unlikely as that may seem I want to be prepared for those prices as I did not expect them last year and anything can happen. Use price to your advantage if you plan on buying weakness and leave plenty of room to buy if unexpected lower prices materialize.

The gold miners always dilute shareholders and tonight was GSS's turn. It would have been nice to have liquidated my position today and buy back in the morning. If I knew all of these events it would not be trading or risk management it would be called Goldman Sachs. I plan to buy back my positions if prices break and actually move into larger positions in juniors that have not yet had big moves. I will be cautious and see how things unfold. It is 1 a.m. on the east coast as I write this and DXY is at 74.83 and gold trying to hold $1200. My sales may not be good sales or they may not have been enough, but my perceptions caused me to take action and reduce position size. The GSS sale was luck with the secondary and I will likely wish that I sold more in the morning.

After last winter, a 20% pullback in gold to $1000 area would be the previously discussed "flesh wound" but I now have room to buy lower and it is possible I may get paid for some of my bearish positions. As you know all too well I am only saying it MIGHT be possible. 🙂 Hopefully a healthy pullback will present itself. Even though I have a large position I hate the straight up moves as it forces me to sell even though I may not wish to do so due to the backdrop – worldwide money printing.

In an earlier post I wrote about some of the unprecedented events we have seen the past few years and another poster referenced a historical book about history. I am in agreement but I meant to highlight more recent times rather than comparing us to the fall of the Roman Empire, or discuss how things are much better now than during the Civil War. An example of what I meant about "unprecedented times" is Sun Trust (STI). Last year they announced they were selling 40 million shares of Coke. They brought Coke public and have held the shares since 1919. They held them through the Great Depression but suddenly found it necessary to dispose of them during the "subprime is contained" crisis. There are many examples in our financial landscape of events and debt levels that have been unprecedented in most living Americans lifetimes and certainly in the past 100 years. People were not told at the time that they were experiencing the Great Depression. I am not saying that we are going to have a Greater Depression. I am saying that we are seeing many things that have exceeded those levels. It would be prudent to take note and try and protect oneself from the fallout of such circumstances.

Why? (by cccactii)

By -

Hello again Slopers, cccactii here again with a simple question that for some reason never seems to get asked in financial markets.

I try to ask it of myself whenever I am trying to analyze a trade, pricing action, news, or anything else that might warrant such a simple probe. When the housing bubble was blossoming few people seemed to ask why? The answer of course was simple: free, cheap money to absolutely anyone, rather than highly productive workers creating wealth from excess savings with rising incomes (in absolute terms), and a shortage of dwellings in a rising population. The end result was the illusion of wealth meets reality

We then experienced the supposed rescue of our financial system. There is no doubt that something needed to be done, but what have we really bought with the taxpayer's money? Time for the biggest and worst banks to play the yield curve and try to rebuild their balance sheets at the expense of prudent savers? A stock market rally? Have we fixed the housing problem? Are people finding jobs? Are we on the cusp of the private sector getting in gear?

The blog Calculated Risk is where I like to get a glimpse of economic and real estate news. I urge you to go there now and scan the headlines. They are not all that different from what we have seen the past two years but they do help answer some of these questions and give us some framework.

Perhaps the recent scandals of high frequency trading, dark pools etc..have changed some of the dynamics of the short term movements or lack thereof, but one of the backdrops we are facing is unprecedented worldwide stimulus vs the ramifications of unprecedented excessive credit bust. This is not hyperbole, it is fact. The pressure of these forces is rising, and should eventually be relieved through our currency.

Gambling has become our national pastime and is now regularly featured on ESPN. We all know how that game ends up, but we do not know the exact route we will take or the timeframe. The reality we all see and feel around us leaves us mystified by the recent pricing action, but in many ways it is rational. It is likely the beginning of a more rapid acceleration in dollar flight, a rational expression when one comprehends how we arrived at this juncture and what we are doing to try and avoid the consequences of our actions. Exhaustion seems as good a catalyst for me to wait for rather than fighting the tape.

Currently it feels like we are at a juncture with some pressure on the Fed regarding the dollar as gold prices are getting plenty of notice. The Fed always talks tough but does nothing. I expect more of the same, but believe that we may see some temporary counter trend currency movement imminently. I am actually looking forward to this as I want to see precious metals tested in the face of a rising dollar, and see the reaction. I expect that in time gold will not trade tick for tick with the dollar, but begin to claim worldwide currency status by default. Remember that we are trying to avoid defaults by printing money and credits. It appears that we may be in the early stages of such an event, but I want to see that premise put to the test.

There is a great little blog off the beaten path that provides some data worth reading. You will like her charts and you can get an idea of where the economy is heading and some time lines to ponder. I always read what Momma has to say, and I hope you may find it helpful in these times, and 2010 should be more to your liking. You can read it here.

Finally, I was thinking of the immense trouble that multi-family real estate is experiencing due to all the homes turned rentals hitting the market and the tax credits for home buyers. I looked at  (EQR) Equity Residential, one of Sam Zells' properties. He was arguably the best real estate investor of our era, as he bought many properties during the last bust, from the Resolution Trust Corp. that the government set up in the aftermath of the resulting bank failures. He sold (EOP) Equity Office Properties at the top tick of commercial real estate in 2006. He then bought Tribune and turned triumph into catastrophe. I imagine EQR is having big problems even if he was  prudent during the boom. These are very difficult times, and old assumptions may no longer be valid. Fortunes made over decades eviscerated quickly. Risk is high and we are in unprecedented times.

"Spending money we do not have is a way to prosperity."  If you ask why to this statement, you should spend some time thinking about protecting yourself from the ramifications of this ideology. That is the answer to most of the why questions.

Here is a view of EQR. Notice that it took about 6 months to wipe out 12 years of equity in Equity Residential. The following 8 months have brought it back to 2006 pricing. A pictorial of the instability inherent with excessive debt.

Eqr

Heavy Metal Thunder (by cccactii)

By -

cccactii here with update on a silver chart that I did in an earlier post. I am very long and bullish metal, but we must prepare for some lightning and thunder, especially if we find ourselves on the "slope of hope" straight up silver chart. A big picture chart of silver shows that 30-50% moves to new highs in a 3-4 month time frame have always been fleeting when RSI above 70 flashes the warning signal.

We may be entering such a time frame soon. Risk will be high! Silver and Platinum are breaking out of recent resistance ranges at $18 and $1400 respectively. The dollar index is ranging around 75 and to my eyes ripe for a quick bounce. I have bought the UUP Dec. 23 calls at .10-15c and I want more at .05c for short term metal hedge, as there is no longer talk on the boards now of a dollar bounce, and Ben could not talk the dollar up earlier today. The dollar plunge seems too steep to continue without at least a random ranging bounce, but if it continues lower I am covered.

I want to eventually sell my metal but I have to have a competing value to adequately compensate me for the risk assumed in owning paper. I will move to paper (Cash,bonds,stocks) when the price of the dollar is very low and the risk assumed in owning paper is adequate. I want to be forced to sell my metal, not by gunpoint or confiscation, but by competition via price and interest rates. I do believe silver will make a new high above the $21 level, but if it happens in the next 60 days or so it will likely be too far too fast, and the straight up silver chart will flash "slope of hope".

If one had no metal exposure I would say the same thing that I have said since silver broke out above the $5.50 mark. If you believe in the long term dollar devaluation thesis, then you should buy a small amount  to have it on the sheets, and then wait for better pricing to buy more, keeping in mind that the inevitable death plunge is always lurking out there. Metal and miner prices always go higher than I think they will and they plunge much lower than I think possible. Reasonable assumptions need to be made, and now is not the best time to be buying precious metals because the risk is higher due to the price.

Volatility reigns supreme in precious metals and patience and reasonable assumptions can be rewarding. It will feel wrong selling silver at $21 or higher in the next 60 days if the DXY is at or below 72. That will likely make it a great sale. I will likely sell my trading stock and paper into such an event should it come to pass, and slowly scale out of my core paper holdings if a major blow off is in the works. I may begin to practice the selling of some of my physical metal as well, but will try and take it one step at a time. Remember that I bought it for this exact reason that is unfolding now.

I did not buy it to stare lovingly at it when the public has fully embraced the idea, the dollar has crashed, rates are high, and it is common knowledge that precious metals are the only thing to own. That is the full realization of why I bought it, and I will need to practice selling as these events unfold. It will not, and has not happened according to my script or time line, or all of these things would have happened years ago. It has not been easy getting to this point in time and price as excessive debt and intervention have caused the instability we are seeing in all markets. We must be very careful!

Possible near term silver top in the works.

Silver1

Silver recently traded between 16-18, breaking out above 18 today but a fast move to 21-24 or higher in the next 60 days likely wont hold, as the recovery moves also needed more time.

Silver2 

Platinum breaking out with only the old slope above.

Plat2

Patience – You may be surprised that almost a year ago to the day Platinum was actually cheaper than gold even though it is roughly 30 times more rare than gold. I had never owned it, but at the time I made a reasonable assumption that having never seen it cheaper than gold it was likely safe to try it on for size. There was still one more chance to buy the 800 area after the pricing discrepancy. Gold price is in the lower window.

Plat1

Finally I am making what I think may be a reasonable assumption about the dollar. It has a very steep gradation that we have seen several times over the past 10 years, where a bounce off the trajectory ensued. It is unknowable to me if this is such a time. Having a very large metal position, I am willing to lose money by buying some UUP DEC calls marked down over 60% in the last three trading days, as a short term mini hedge as my long term thesis gains popularity. Good luck to us all!

Usd2

Risk Manifest (by Steve)

By -

Wednesday's sentiment and the market's recent price action has made me step back and stroll down memory lane for some context. The increased debt in our society is very destabilizing even though when it is being created and put to use, it has the appearance of tranquility, and masquerades by the ever so juicy bullish nickname of liquidity. These debts and imbalances are cumulative and must either be paid off,defaulted on, or monetized in the case of a nation.They have not been paid off and some have defaulted but the size of the debt has increased dramatically, and terms have been extended.

Risk  -  General: Probability or threat of a damage, injury,liability, loss, or other negative occurrence, caused by external or internal vulnerabilities, and which may be neutralized through pre-mediated action.

Manifest – 1 : readily perceived by the senses and especially by the sight2 : easily understood or recognized by the mind: obvious

In 2006-2007, perhaps earlier it was clear to me that the market and the economy were going to be hit with a very high magnitude earthquake. The Fed has always been relieving the pressure of any tremors with low rates and bailouts, so that by this time the pressure of debt accumulation was off the charts -literally. Capitalism's destructive side had been banished, and the nation would know only good times thanks to Central Planning. Who is against that? There were so many economic first's that exceeded all of our previous historical extremes, including the Great Depression era,such as CEO pay in relation to the average worker, and debt to GDP ratio's. I had a nice basket of puts on Nova Star,New Century, Countrywide, WAMU, etc….. but I was looking for the glue factory that kept all of this debt together. I stumbled upon Ambac financial and read the following on yahoo finance ABK profile –

"Ambac Financial Group, Inc., through its subsidiaries, provides
financial guarantees and financial services to clients in the public
and private sectors worldwide. The company operates through two
segments, Financial Guarantee and Financial Services. The Financial
Guarantee segment provides financial guarantee insurance and other
credit enhancement products in the U.S. public finance market, the U.S.
structured finance and asset-backed market, and the international
finance market. The Financial Services segment manages interest rate
swap and investment agreement run off businesses for municipalities and
other public entities, health care organizations, investor-owned
utilities, and asset-backed issuers."

I suspected I had hit a future Grizzly Bear junction, but I am only a non-pro -"don't try this at home"- type, with no Street connections. Looking back you must admit that profile is a scream. I  A quiet, off the radar, multi -billion market cap black box! I bought Jan08 85,70 and 60 puts from AUG 06 until Feb 07 at prices from $1.45-$2.90. Nothing huge as I had no conviction, just a hunch. By the spring of 07 I was stupefied (extremely pissed) that the market had not priced in what I was seeing.

Then I read this – sounds like today.

"I haven’t had much to say lately. Just more of the same. With money
growth my firm estimates at an egregious 14% (compared to a falling GDP
now quoted in the 1-2% range, we can safely say that the money is
becoming more and more anemic in producing growth), no wonder
speculation in stocks and other assets is unabashedly high, along with
risk. But I don’t confuse risk taking with value and I hope you don’t
either". "I have suspected for a long time that government
“intervention” or “participation” (or whatever you want to call it) in
private asset markets is as high as it has ever been. The markets are
just not acting “naturally” to me. They seem orchestrated in many ways.
Why? With the levels of debt in the system (we have no historical
reference), central banks must keep asset prices rising so that the
debt doesn’t look so bad on balance sheets. To keep the public and
corporate sectors borrowing, they have to have rising collateral.
Governments are becoming a larger part of the real economy with their
debt creation. Free money means lower returns for everyone." – John Succo of Vicis Capital May 17th 2007 full text is here http://www.minyanville.com/articles/5/17/2007/index/a/12859

That might explain it, the Fed starting intervention at 5% from the highs, but finally by July, New Century and some others started to pay off but it was small consolation at the time. Then on July 19th I read something about analysis and pricing that I will never forget.

An Intricate Pas de Deux, Starring Mr. Market and You

"Lastly, I'd like to make a comment about analysis versus opinion. In
the investment business, there are two components of an outcome you
expect to see in the marketplace. The first is your analysis of the
phenomenon or security you are scrutinizing. The second is your opinion
(educated guess) about how other people will greet (price) the outcome
that you expect.

For some time now, I have
been chronicling the problems in subprime and what they mean. It was
possible to look at what had been occurring in subprime and know that a
very large number of these loans shouldn't have been made, as they
weren't going to be paid back. In addition, it was possible to know
that the people who owned the loans were levered up, as were the people
on the hook for them. Thus, it was logical to conclude that many of
these mortgages would be defaulted on, creating ramifications
throughout the financing and economic food chain.

Those
of us who believed in that analysis have been correct, and I believe
are continuing to be correct. However, those people (like me) who
thought that analysis would matter to the stock market (the opinion
part) have been incorrect, as thus far it hasn't mattered. Nonetheless,
I am more convinced than ever that the outcome I envision is
unavoidable, even as the timing remains unpredictable.

In the Final Analysis, Trust Analysis

Why do I bring this up? Because folks at home trying to determine who
they'd like to listen to/and what information to ponder — versus what
to ignore — need to be aware of those different components. I say that
because if somebody continually gets the analysis part wrong but gets
the guess part right — i.e., temporarily makes money buying
stocks because he says that either subprime doesn't matter or is
contained — that incorrect analysis will ultimately see him get
carried out. In the long term, correct analysis is more important than
your guess about how people will react to it.

Today's bulls have all been right about their belief that stocks should
go up every day, but many have been wrong in their analysis. One of
these days, Mr. Market is going to exact a penalty for the guessers
who've guessed right for the wrong reason. I believe that day is coming
sooner rather than later, and will cause far more damage than anyone
expects." -Bill Fleckenstein's Daily Rap 7-19-07

Here is what ABK looked like going into July 2007

ABK 

Daily "Endurance" Relief Chart 

ABK2

 "Risk Manifest" and a true picture of our financial system.

ABK TODAY

So where does that leave us today? Where are some ABK"s? Looks easy now – remember all the Fed tricks and Jam Jobs to keep the tape together? It was crazy. It is crazier now, but many of those stocks are gone and the problems have changed somewhat and the risk shifted. Fleck has had virtually no shorts since March. Fred Hickey none since October. Jimmy Rogers said today "this is one of the few times in my life I have not had shorts anywhere in the world". The reason? Fear of money printing liquidity re-fueling the stock markets.

Could we see something similar to this again? Of course we could and I should welcome it rather than fight it. Patience. I knew they would keep bailing until they are forced to stop, and that is why I own gold.

Spy

Was yesterday our July 19th 2007 and the reality of our economic plight gets priced right? Is it 2004 again? Where is safety? Cash? 

Finally an article I re-read frequently as it captures the quintessential nature of "Risk Manifest" in this era. You can read it here -http://www.minyanville.com/articles/index.php?a=24852

"I’d like to discuss human nature and the paper we call money from a
slightly different perspective. I was recently thinking about what's
transpired in this country in the last decade: First the equity bubble,
then the real estate/credit bubble, and then the steady debasement of
the dollar (where a trickle is now threatening to turn into a flood).

I've been struck by how few people seem to understand how all these
events are related, in that at the root, they each have irresponsible
money-printing as the cause; the sociological and psychological
phenomena that go with it (i.e., the regulators not doing their jobs)
are just part of the process. Each problem led to the next, where one
year ago, the financial system was bailed out at the risk of the
country ultimately enduring a funding crisis.

One fact that strikes me is how few people seem to have been able to
protect themselves from the first two (even though they were so
obvious) and how few will be able to do so on this third, huge problem.
In my own little world, I wrote until I was blue in the face about the
risks inherent to both of those bubbles (as did other people), but
still only a small subset of folks managed to avoid calamity." Bill Fleckenstein 10-08-2009- Its All Just Monopoly Money

Make sure you are in the small subset this time around! This is not quite ABK but it is the real glue factory in my eyes and I will be unleashing the put army when it finally breaks. Good Luck to us all!

Tlt