Tuesday, August 25, 2009

Bernanke Has Saved the World, Now What?

"It's… almost peaceful. No need to believe in either side, or any side. There is no cause. There's only yourself. The belief is in your own precision."
Max Von Sydow's character, Joubert, from 3 Days of the Condor

My biggest mistake as an investor this year has been forgetting about "what if." In Michael Lewis' Liar's Poker, one of his early influences was a boss who was constantly asking this; what if a tsunami strikes Asia, what if a foreign currency blows up, what if we return to the gold standard (yeah, right!)? My guess is that this guy probably eventually blew himself up in a Black Swan event, but the question should be asked.

Rooted deeply in bearness and having killed the market doing so lulled me into a false sense of security. When Citi dropped under $1 and BAC under $3, my question was, "who's next," not, "how much longer can this last?". Believing strongly that world economic collapse is and was upon us, I did not prepare well at the time for the ridiculous rally that ensued. And as Bernanke gets reappointed and markets continue to rise on the scantiest of really good news, I realize that our 2 best trades this year have been calls on stress test banks and on the market after a tough June.

Have no fear. This market, this economy, are all a sham. Nothing has changed my opinion on that. Jobless rates are over 10% (gubmint, not Shadow Stats data) in 15 states. Twenty-percent of the entire trading volume was in Fannie and Freddie yesterday, and the Fed might actually have to tell us which banks were insolvent without big-time loans. And don't forget H1N1, your friend, the swine-flu. If the government report that came out yesterday turns out to be half right, the economy is sunk. 30-50% of the population getting sick and 30K-90K deaths? The sheer panic alone would cause most businesses to operate at diminished or useless capacity. And let me tell you as someone treating 20 cases/week, this thing feels under reported.

So Joubert was right. No need to feel like a bull or a bear. Just make good trades and hedge appropriately. I'm feeling flush after huge returns on SSO and DIA calls, with hedges on FAZ, Citi calls making a run, and longer-term calls on oil and gold. Inflation? S&P up/down? Oil at $50 or $100? Sure.


1 comment:

Anonymous said...


A sham indeed... yet, I hope the sham will continue for some very selfish purposes, at least until the second week of Septmeber... Remember my friend, the muffled footsteps...the turning of pages for a FED audit will be soon upon us...that is unless all stops are pulled out and the "financiers" threaten to do nuclear with a 300-700 point drop as a symbolic gesture (or should I say jester) of saber rattling... and should such events transpire my friend, we must be prepared.