My rant from CFZ:
I'M WARNING EVERYONE who is short or who has been considering leaning against this market something terrifying that I realized a few weeks ago. My trading buddies dismissed it as a "long-term effect" but I'm here to tell you it's real, and it's a rip-tide of a current we must figure out how to survive.
WHEN YOU GO SHORT A US STOCK, YOU ARE GOING 2X LONG THE DOLLAR. It's virtually hidden from you, but believe me, you are doing it. Consider: you have the good fortune to hold $1M US currency. You are long the dollar, 1X. You could trade it for Euros, and be long the Euro, 1X. You could buy something real with it, say a big house, or a whole bunch of food, and be long those, and out of the dollar. Or you could do something foolish <s?>, like short the US stock market. In shorting the market, you borrow a whole bunch of shares and sell them, generating another $1M in US currency that you must hold against the short position. You now hold $2M US currency, and a $1M liability in stock. You are 2X long the dollar vs. your equity!
Ramifications are huge. The market isn't surging on the basis of an imminent turnaround in the US E-con-o-me, but rather the destruction of the yardstick by which stock prices are measured. There are two elements to the price of a stock - the value that the market ascribes to the company, and the value of the yardstick (the dollar) in which it is measured. In most times, the currency that a stock is measured in is stable enough to be ignored, but that is not the case now. Currency can no longer be left out of investing strategy calculations. We must figure out (remember?) how to operate in a world of malleable currencies. It's the financial corollary to Einstein's Theory of Relativity. Consider that the dollar has lost 15% in the past year alone, from 108 to 93:
quotes.ino.com
Without any change in the underlying value of the companies themselves, this alone can account for a 15% move in the value of the stocks. (Of course this ignores that much of the sales are dollar-based, but if you stick with the concept of the dollar as a yardstick measuring the size of a company, you'll get the concept.)
I thought the answer was just to get the hell out of the dollar, but the recent actions of the ECB tell me that they are joining the Fed in a global bonfire of the currencies. The JGB has been holding a blowtorch to the wet kindling for *years* now, at the expense of their savers. The only conclusion I come to is a looming hyperinflation, as years of global currency printing explode after reaching critical mass. The Fed thinks it can then raise rates to stem the incipient inflation. Wrong. The further we go into this, the more impossible it will be to ever raise rates. The Fed is getting so far behind the curve it can't possibly recover. The whole global economy now depends upon free money, and the speculating masses have built up immense carry trades that will blow up the instant the Fed removes its foot from the gas. Either way, the Fed gets what I think it wants - money is nothing but an accounting mechanism for future claims on global assets, and they are pushing the reset button. Existing claims will be deleted, so get your hard assets while you still can. Don't fight the Fed comes to mind here - they *will* produce inflation if they wish, but it's going to be a tidal wave they can't stop once unleashed.
Can I figure out what this does to different financial asset classes - stocks, bonds, relative currency valuations? No. Am I sleeping comfortably with my positions? Hell no. This is driving me nuts. I've been a good, saving, honest, rational economic participant, and I see the purchasing power I've stored being decimated in the coming years. The only thing I'm pretty sure of is that gold and commodities will do well in this environment, but I'm not comfortable going 100% into them. Hell, I'm not even at 20% yet. And why not? Years of brainwashing I guess. Maybe I need to start thinking in terms of holding a *majority* of my assets in commodities.
Why can't I see going to commodities full-scale? I guess I've been conditioned to believe that the asset class doesn't have a return on investment. Maybe we need to be concerned more with return OF investment. Of course, if we can anticipate where the investing capital will ultimately flow, we'll not only get a return of our investment, but also gains on the basis of being there early, before the tidal wave of investor interest.
Yikes, I just got back from my honeymoon, and I come back to this bullsh*t. Thank you Alan Greenspan. Thanks twice - once for being responsible for making me a wealthy man, and again for trying to take it all away from me...
BC |
