Finally our bleating of the past year is turning to reality. Watch for the usual over-reactions now. For the past few weeks, every bit of news has been forced into the "good news" cookie cutter. Now, watch every bit being squeezed into the "bad news" cookie cutter.
Step in The Economic Clock™: it may not be a great day to day timing device, but it certainly helps you tell The Economic Time™ - and that is where the money is made: the trend is your friend.
1. Our take on current convulsions
We are not going to waste your time and money by saying "I told you so" - regarding a falling market and a rising yen.
Thus, we'll re-iterate our long-held views that:
- the sub prime crises are deeper than markets initially wanted to accept
- the yen will climb now that carry trades get unwound
- America's Economic Time keeps rotting away (sub. req.)
- Beijing may say that she is tightening, but who ever believed that Beijing runs all of China?
- "de-coupling" is a figment of the imagination: fear and greed, not rationality and sobriety, run the markets. Things are not different this time around, and certainly never in the short term! We have reasons to buy China, but want to wait until the dust has settled and the wounded leave the hospitals...
2. How to save money off this idea
We have just now asked the Bank to sell all individual stock positions, the view being that this is the beginning of the end. That is because markets not only swing from buy to sell, but they also start discounting news. So, as we put forth recently, we thought that that by selling in mid-December we would beat the rush to the door. Today, we have fast-forwarded this and sold out completely.
Going from the fall of 1976 to the fall of August 2000, here is the anatomy of a crash (using Wall Street as our gauge):
- the market has fallen on average about 17 months, with 9 months give or take, so it could fall from six to 26 months. My hunch is that the fall will last shorter - at least through 1Q08
- Over these eight corrections, the market has fallen by an average of 17% (the worst was the August 2000 crash, when the market plunged 44%; in 1987, it ultimately fell by 20%), give or take 12%. This means that the market could fall from 5-29%
3. How to make money off this idea
We have taken the sales proceeds and will be going into a "short" ETF on the S&P.
Also, we have kept all of our commodity ETFs, the logic being that there will be flight to safety, as in: gold, palladium and platinum. Meanwhile, we expect "Muddle East" tensions to rise, so up goes the price of oil even more.