"Wall Street stabs individual investors in the back (again)"
When you think about being stabbed in the back by Wall Street, you’re probably thinking about the likes of Tyco’s Dennis Kozlowski, or World Com’s Bernie Ebbers.
But, it’s not them.
Nor is it Ken Lay, Jeff Skilling, or Andy Fastow of Enron
And no… it’s not Converse Technology’s CEO-on-the-run -- Kobi Alexander either.
In fact, it’s not at all who you may think it is.
While all of the above were dirty rotten scoundrels who spoon-fed Wall Streets analysts with glowing expectations while secretly dumping insider stock and/or siphoning off millions upon millions of shareholder dollars. The real “back-stabbers” are the analysts who see what’s going on and quietly tip off their own managers and favored institutional clients…while simultaneously telling you the individual investor to “hang on tight” or to -- “buy the dip.”
Yesterday it was Mary Meeker and Henry Blodget with Tech & Internet Stocks… today’s it’s any of the commodity permabulls du jour and the commodity stocks.
Equally fatal are the newsletter writers whose only mission in life is to sell you something and basically do it by continually telling you only what you want to hear…
They have eternally blown smoke up your ass and have promised you the imminent collapse of the global financial system on a daily basis ever since Nixon closed the gold window back on August 15th, 1971.
Today they're painting visions of sugar plum fairies dancing in your head with promises of gold ever-poised to rocket thru $2,000+ because Gold is soooo cheap when based in 1980 dollars ( so are Miami Beach Condos by the way…).
Well here’s what holding on tight has gotten the commodity permabulls of late:
Both the HUI and the OSX have significantly underperformed the broad market since mid-May:
Paradigm shifts occur when everyone is already on the same side of a trade…and just a couple of the elephants in the room start to move toward the exits.
And just who are those “elephants” you ask?
Institutions, Pension funds and of course the hot money uber-levered Hedge Funds.
Pension Funds?
Yes, pension funds…and you thought the commodity bull was still your special secret?
You don’t think that Pension Funds have played a roll in this commodity run?
Well here’s the facts from a recent piece titled – “Actuarially-Driven Investors & Financial Fads” from Institutional Advisors:
“Recently, HSBC estimated that by the end of 2006 institutions will hold some US $100 billion in commodity indexes. This compares to US $10 billion held at the end of 2003 and very much less at the cyclical low for commodities in late 2002.
This is the first direct venture by such funds in history and marks a remarkable departure from “The Prudent Man Rule” into the fad de jour.”
Hedge Funds took much of that money and thanks to the Yen Carry trade, were able to leverage up on commodities during a period of falling interest rates, a collapsing US Dollar & global reflation.
Well in case you haven’t noticed… Global Central Bankers are now mopping up the excess liquidity that was created to stave off the global deflation threat of 2001...and that's a major paradigm shift.
Another paradigm shift will be the “pound of flesh” retribution from America’s poor and working middle class that will begin to show up at the polls in the 2006-2008 elections.
There will be hell to pay for what is perceived to be “tax cuts for the rich" – that basically allowed them to entirely escape the ravages of rising energy costs and inflation”…that were entirely borne by the poor and middle working class Americans.
That’s why I called this chart below the single most important chart in the entire market:
And perhaps this recent piece by “triple waterfall” commodity superbull Don Coxe best personifies the “stab in the back” of individual investors…who are encouraged to “hang on tight” while Institutional Clients get the “nod & the wink” to begin their exits…and exit they have.
I’d suggest than all card-carrying commodity permabulls re-read Coxe’s recent commentary:
*************************************************************************************************************************************
bmocm.com
"The long, Amazonian flow of liquidity into global capital markets threatens to dwindle to a mere trickle. Shocked market participants call on the financial climatologists to tell them when the next rainy season will come.
No one knows.
Liquidity levels had been receding gradually from the flood conditions of 2002-4, as the Fed, ECB, and almost all other central banks switched from ease to restraint.
In March, the holdout—the Bank of Japan—suddenly made the tightening unanimous, effecting the most dramatic collapse of a major Monetary Base in modern history—slashing monetary reserves by 20 trillion yen (roughly $175 billion) in less than 11 weeks.”
“…We have long believed that liquidity-driven stock markets would roll over when global liquidity switched from growth to shrinkage.
The financial world now faces a drought of unknown intensity and duration.
The economy, and the prices of stocks, bonds—and even houses—float on liquidity. They rise and sink in response to the liquidity beneath them.
That is the basic physics of the markets.”
“...This would be the most dramatic monetary tightening of our lifetime, so the yen should have gone up sharply in value. Instead it rallied briefly, then fell, showing the scale of unwinding by hedge funds and investment banks as they were forced to close out their yen borrowing positions.
With gold soaring through $700, Barron's responded to the outbreak of gold and inflation fever by running an interview with a self-professed gold expert, who projected gold could run to $8,000 an ounce. Day after day, the media informed us that gold was at its highest price in more than 25 years.
Inflation was obviously back on Page One."
"Can you say -- Paradigm Shift?"
Neither the interviewer nor the gold bug knew that Governor Toshihiko Fukui and friends had already unleashed their attacks on the inflation virus.
$175 billion worth of paper money was being vaporized.
[remember -- "Trillions Trump Billions"]
The Bank of Japan has rejoined the worldwide club of central bankers. Having been the sole nonconformist, the Governor of the BOJ must now be ranked as the High Priest of the worldwide communion of Certified Inflation Fighters.
We believe the central banks will once again triumph over inflation.
And COXE even had a reality check for the oilpatch permabulls:
"Looking to the winter and spring demand for oil, with almost every central bank on earth in tightening mode, and oil at $74 a barrel, the surprise would be if global growth—and global oil demand—were to live up to consensus expectations.
Based on that historical pattern, we think oil prices have a 50/50 chance of trading down to the fifties next year."
.....Whodathunkit?
Oh...and COXE also had a comment vis a vis bonds as well:
"... an excellent low-cost hedge is long-term zero coupon bonds. They will be the asset class of choice when the economy begins to show unmistakable signs of weakening."
***************************************************************************************************************************************************************************
Coxe’s entire analysis says sell & exit commoditiy stocks (albeit 2 months late)… but, after he announces that his comments will no longer be published to the “individual investor” public (imagine that…whodthunkit?) he basically does a “180” from his bearish analysis and implores investors to “hold onto” their commodity stocks…while driving the knife firmly between their shoulder blades with this final instruction to goldbugs:
“Remain overweight the gold mining companies”
I’ve often pounded the table about “being early to the party” and never, ever, EVER being caught hanging around at last call.”
While this may, or may not be “the last and final call” for this commodity cycle…
-- given the fact that the last of the 17 consecutive Fed rate hikes will still not even begin the pass thru the U.S. economy for another 6 months.
-- given the fact that the U.S. consumer still faces nearly Two Trillion Dollars ($2,000,000,000,000.00) of mortgage payment resets over the next two years.
-- given the fact that the U.S. consumer has a zero (in actuality – a negative) savings rate to fall back on.
-- given the fact that the U.S. is now seeing the collapse of the Housing Bubble and that historically the “wealth effect” has a 2 year lag in it’s negative effect upon the economy.
And given the fact that the Fed may not even be done hiking rates…
At the least… it was a good time to have not gotten greedy and to have taken the cash and to have beaten the elephants to the exits.
I’ll end with repeating myself once again… with what I think is the single most viable trading concept over the next few months in this present market environment:
”The mistakes are all waiting to be made.”
-- Savielly Grigorievitch Tartakower – famed Russian Chess Master
The first mistake was not already cashing out.
.. the second is yet to be made.
-- be patient and wait for discrepancies between price and risk to develop (either long, or short).
-- play the players…not the cards.
-- cash & patience, not oil & gold… are the two most valuable commodities in this market.
Later,
SOTB |
