"If you can keep your head while all those around you are losing theirs... then you obviously have underestimated the severity of the situation!"
;)
I have made a lot of money over time selling euphoria (May 2006) and buying desperation (as we are presently seeing).
I want to buy not just when people are selling, or taking profits, or when stocks are pulling back... but when people are puking up stocks and when there is forced selling... not just fear - but panic.
If not then - when?
GS perspective: $5 on a $185 stock is the same as .50 cents
on an $18 stock.
Let's take a look at what happened at the end of last week. Was Goldman any worse than oilfield fav' RIG, or precious metal/natural resource fav' Freeport McMoran?
Here's reality:
Now, I don't want to buy junk, or go madly long the broad market here. But, I do want to begin establishing positions on sector leaders...the absolute best in class stocks that
have been oversold.
I want to buy this out performance:
At this discount:
One factor that many seem to forget is that 45% of the S&P 500's earnings come from abroad, and the global econonmy is still growing at a +5.2% rate. And outside of the housing stocks and subprime...the U.S. economy has not rolled over and died. In many area's of the US - there never was a housing bubble - so, there's not much to correct. I simply do not believe that the excesses of Florida, or California are going to roll the U.S. into the next great depression.
We had leveraged excesses in housing. Both the builders and the lenders needed healthy corrections...and we are getting it. Most of the homebuilders have literally given back the entire move of the housing bubble. Their bottom is perhaps more a matter of time than tape...and it's when, not if...there will also be some tremendous longterm buys in the builders.
We also had leveraged excesses in credit derivatives and we
are getting healthy corrections in those areas. Bear Stearns
refused to participate in the bail out of LTCM and they were
hung out to dry here. Pay back is a bitch - whodathunkit? Then at 2 p.m Friday, their CFO played his - "if we go down - you're going with us: card...and now the financials and investment banks are in panic selling mode as credit derivatives are being re-priced - as they should be.
The challenge is to not confuse Goldman with NovaStar, or even Bear Stearns.
None of this was unexpected. It was always a question of when, not if. I spoke about the "when" back in May:
Message 23512782
I don't disagree with the fundamental bear case stated here by many. It's the same drum I've been pounding. Where I differ is this. I am short the subslime and want to stay short the weakest of the weak untill they turn...but, as we near the end of panic and forced selling; before I cover all shorts - I want to being buying deeply oversold best-in-class stocks. And that's what I'm doing and GS is an example.
From a risk:reward perspective... it's too late to jump on the short bandwagon...and historically, there's always some buys to be found in panics...and select financials and investment banks have been deeply oversold.
If you've been listening to key players in the media. The gameplan has already been leaked.
Paul McCaulley of Pimco has been pounding the "talking points" of the Fed's new comfort zone with inflation - at 1-3%. So we have a new ceiling of 3% - instead of 2%. This opens the door for the Fed to cut rates with inflation over 2%.
Bear's CFO yelling "fire in the theatre", along with the cries of help from everyone from Countrywide's Angelo Mozillo to the meltdown of James Cramer has not fallen on deaf ears.
Remember - we've got an election right around the corner.
Paulson has already laid out the gameplan to the G-8 and he might as well just establish residencey in Beijing.
The IMF stands ready to dump more gold and quash the canary in the coal mine...and it is also spreading Paulson's talking points about the world being comfortable with a still weaker dollar....and higher US inflation.
We have seen an unprecedented level of cooperation between global central bankers.
The U.S. was the first to tighten...and now the rest of CB's are following.
The U.S. will also be the first to cut...and then other CB's will follow.
For the last 15 months even with further expansions of money supply, higher inflation and a weaker US Dollar...stocks have vastly outperformed gold.
And the reason for that - is the new level communication and cooperation (read intervention) between central banks.
Contrary to all the hype in the gold bug newsletters, and the breathless hystrionics from the pundits on gold-eagle, kitco and 321-gold...China has been buying U.S. stocks and bonds...not gold.
For the last 15 months in gold - this is what has worked:
- a negative coorelation to the broad market has not worked.
- further weakening and new lows in the US Dollar has not worked.
- being a flight to safety during financial, or geopolitical crisis has not worked.
- being a barometer and a haven for inflation has not worked.
And the reason it has not worked is the new level of cooperation between global central bankers.
This correction in subslime and credit derivatives was not unexpected. Quite the contrary...it was orchestrated and communicated.
That's what made that Barrons cover about - "Where's the Little Guy" so despicable.
This was all orchestrated.
Paulson has been prepping the Chinese and Central Bankers for months. Everyone from the IMF to Pimco's McCalley have been laying down the talking points.
The Yen carry-trade and the speculative excess had to be wrung out.
Paulson has his eye on two prizes for the investment banks.
1. China's financial system.
2. The privatization of the U.S. Social Security System.
There is a U.S. Election right around the corner. And for that reason - speculative excesses had to be wrung out of the system - sooner, rather than later. A 2008 correction would sink the Republican ship. Better now the correction...than later.
And who will benefit most by this volatile shakeout?
"The Little Guy?"
Or, those who orchestrated it?
Keep your eye on the prize...because they are.
SOTB
Later...
-- "Silencing the Canary" and what's in store for gold. |
