Preparing for a Crash

Includes: EUO, GTU, SDOW, SPXU
by: Mr. Massive

The morning that this article was written, the United States received some positive economic news. Both initial claims and continuing claims were better than expected. Initial claims came in at 395,000, below the briefing forecast of 409k, and most importantly, below the 400,000 level. Continuing claims also beat the consensus at 3,688,000. Unfortunately, the trade balance registered -53,100,000,000, 5.1 billion worse than expected.

At the University of Richmond, I studied both history and business. I am a strong advocate that history repeats itself. While not the sharpest tool in the shed, I'd like to believe that I compensate for lack of market experience with common sense. When swimming in the ocean, it is a heck of a lot easier to swim with the current as opposed to against it.

We entered a secular bear market in 2000. Typically, they last 18 years and have four legs down. For greater clarity, please click here. We are 11 years in, and in my opinion, in the third tribulation period. Keynesian band-aids have artificially propped up the stock market, propelling the most recent cyclical bull market, which ended with the conclusion of QE 2. So ask yourself this, without QE 3 (which is criminal, both in a legal and civil sense), which way is the current moving?


1) Unemployment is above 9 % and steadily marching to 10%. These numbers don’t take into consideration those who have quit looking and the students who are avoiding the job market via earning advanced degrees.

2) The GDP is abysmal, even with the trillions of dollar thrown carelessly into the market. Anytime GDP levels breach 2%, a recession is almost guaranteed.

3) Our country is divided, the blame game is rampant.

4) Congress is inept. The men and women elected to represent our best interest have a 10 percent approval rating.

5) Our debt is alarmingly high, raising at an increasing rate, and steadily reaching 100% of GDP. We currently spend 3.5 trillion dollars a year, while only raking in 2.1 trillion. Imagine if the US government was a business. They would be out of business in a month! Fortunately for them, they have the greatest, most innovative workforce to extend their undeserved credit.

6) EU contagion and recession highly likely. Their debt levels are catastrophically high, and the first domino will fall soon. Failed policies and lack of transparency are evident.

7) Emerging markets growth is slowing and inflation rising.

8) A massive deleveraging process, both in the US private and public sector, is about to begin. For a sustainable recovery, not only does our debt have to be paid off, but the dollar has to increase in value. This will lead to lower commodity prices and yes, lower stock prices. We need pain before we realize real gain. Finally, the average American will benefit.

I hope you can put the pieces of the puzzle together. Furthermore, using the DOW as a barometer, here is the greater picture. The DJIA entered the secular bear at 12,500, providing a pretty accurate top for the current secular market. The cyclical bull of 09-11 just ended, ushering in a cyclical bear. Government, one of, if not the greatest contributor to GDP, is about enter an age of austerity and has been unsuccessful at creating jobs. Now, with both the greater and present picture in focus, here is only one way the market can trend: down!

Jim Cramer is half genius/half idiot. However, his claim that there is always a bull market somewhere is irrefutable. During a bull market, you always buy on dips. Conversely, in a bear market you always short on bounces. So if one takes an inverse approach to a bear market, a bull market arises, but in the short sense.

The great thinkers and leaders of the past 100 years have one thing in common: often they surround themselves with smarter more clairvoyant advisers. I take the same approach to investing; I listen to my friends/ family who make a sound living advising others. For the greater macro picture, I listen to certified financial planners. Their goal is to retain and grow wealth while minimizing losses. And they have been preparing for a crash for some time now. So has the morally questionable George Soros.

Without further adieu, below is a simple portfolio that is going to KILL the market over the next 9 months. Why such a little time period? Because history repeats itself. Every year that precedes an election since 1939 has resulted in a bull market. Politicians promise the moon, and the market believes them.

1) Cash: 50 % - Nice to have some insurance for a rainy day.

2) GTU: 15 % - Canadian Gold Trust. Audited with holdings of approx. 98% gold and gold certificates and 2 % cash.

3) SDOW: 15 % - ETF, 3x short the DJIA.

4) EUO: 10 % - ETF, 2x short the Euro against Dollar.

5) SPXU: 10 % - ETF, 3x short S & P

Wishing nothing but the best to all, in every future endeavor.

Disclosure: I am long GTU, EUO, SDOW.