Thursday, May 6, 2010

Rolling in Cash

After market action today, readers here may be rolling in cash and be partying all night. For those owning stocks in brokerage accounts or 401Ks, etc, especially major ones as in the Dow Jones Industrial Average (DJIA) or S&P500, you were stopped out today, and will sleep tonight with all cash in your accounts.

Stopped Out. With DJIA falling almost 1000 points and the S&P500 falling about 100 points, for a nine percent loss, in mid-afternoon panic selling today, any properly managed account would have been stopped out of almost all positions. What is stopped out? As explained in Betting Against Big Banks, a stop order can limit losses when prices drop as today, by selling a long position (one previously bought) if prices drop to the stop price. Well, you and millions of others were stopped out today in a move called "hitting the stops", as previously discussed.

For those stopped out, now you have cash in your account and can start using that to buy Gold and Silver and their mining stocks tomorrow -- a little at a time, hoping to buy on price dips and selling a little of your holdings on price peaks.

Cashing Out the Smart Way. On the other hand, hopefully readers here, if they owned such stocks, had already sold them at higher prices to the "greater fools".

Selling those over-priced stocks when prices are high maximizes your cash war chest for the universal currency -- gold -- and related nifty investments. For those stopped out today, the market did it for you; now you hold that hot potato known as paper money, most of which one wants to get rid of as fast as possible.

While it is no surprise among independent investigators of truth here, at the New York close today, we saw gold up strongly, general stocks down markedly and both "old world order" "flight to safety" assets such as U.S. Treasuries and dollar up strongly. Of course, these two U.S. assets are both bubbles ready to burst, but as Baha'u'llah said, everything in its proper time and place. The Treasuries are now the biggest bubble about the burst, which can be traded with TBT, but probably next week at the earliest, unless one wants to venture into an initial "just in case" core position in TBT. Just in case that bubble pops before one might expect it; and U.S. 30-year Treasuries are set to trend to a price of zero, meaning a win-fall for holders of TBT. The U.S. dollar is up only because it is temporarily the "least bad" among some other fiat currencies, and that rise is scheduled to pop also.

Meanwhile, today, the gold and silver miners (e.g., see the HUI index) had a ho-hum day even while the DJIA was off some 10 percent in mid-afternoon. Indeed, following gold, these mining stocks were generally up, saying, "While it is 'burn, baby, burn' for the DJIA, my leveraged flight to quality is gold and silver still in the ground bought at deep discount."

Let's check in with FAZ -- you know, the little ETF that could when it comes to slaying the "too big to fail" banks. The one that goes way up when the bankrupt banks go down. If we acquired one or more lots (multiples of 100 shares) a few days ago at 12, as reported here, today it traded as high as 15.97 and closed at 14.29, representing a 19 percent gain in just a few days. But that is no doubt just chicken feed, since these bank stock prices are trending to true value -- zero. Should we be sad? Not at all. These worthless illuminist illusions of grandeur, such as Goldman "We are gods" Sachs, have been killing the little banks -- the ones the country really needs.

Outlook. Remember and I know you do, this blog has stated "anything can happen at any time". So while we ponder what tomorrow holds, something like FAZ could pull back, in which case I plan to add to my core FAZ position (buy the dips).

For DJIA and S&P500 stocks, it is now sell the rallies, which can be done by buying one or more lots at a time of SDS, a 2x short or inverse S&P500 ETF instrument which goes up when those stocks go down.

Keep in mind that lots of people now have been stopped out, are sitting on cash, and still believe the propaganda that the U.S. economy is improving. Many will be looking to buy back into those asset classes, helping us find nice peaks to sell (by buying SDS). Also helping us sell the peaks are most commentators on TV telling people not to panic, not to sell, because the U.S. Federal Reserve (not part of the government) has saved us, and so forth. Of course, we know the "Fed" has never found a forecast that it could not get wrong. Most of the analysis on TV news aims to blame Greece, while readers here know the sell-off was due to big daddy (the U.S.) firmly in line on its road to ruin and poverty.

How far can the DJIA fall? First, the DJIA, as an index, is itself manipulated. Just in recent years, companies that have failed miserably have been removed from the index and replaced with some other currently strong stock. So if there had not been this index component manipulation, the DJIA would be dramatically lower now than what it appears to be. This manipulation is, of course, designed to suck new fools into this bear market.

Second, as already seen twice in the last century, a good DJIA low point is when its index value is the same as the price of gold (DJIA/Gold = 1.0). For example, if the DJIA is 4000 and Gold is also 4000, we have a ratio of one. However, given the first point above about the manipulated index components, some analysts might be happy with a ratio of, say, 2. For example, DJIA at 4000 and Gold at 2000. Whatever the case, we are no where near a point where we even would start to think of selling some Gold to buy such stocks.

Third, consider the big banks. Here we are lucky since we don't have to be an expert to estimate their value, we have an exact value -- zero, nothing. If proper accounting were used, they mostly have a negative net worth -- and hugely less than zero. So we know where the target price is there -- a descent to zero. That is, if you have a single dime in your pocket that you don't owe to somebody else, you are more wealthy than all the "too big to fail" banks combined. Feel better? Have fun with FAZ on its probable trek to glory.

Sleep well tonight with all that cash.
© 2010 James J Keene


  1. Sell gold by dealing direct with local, state licensed gold buyers to get the best value. Gold is at a 30 year high and values have never been better.

    sell gold for cash

  2. Correction: Gold is not at a 30 year high and values have been hugely better. According to ShadowStats, the US dollar has lost some 90 percent of its value (purchasing power) in the last 30 years. If we take a round number for the 1980s nominal gold price high as $850, then a new inflation-adjusted high would be in the $8,500 range.

    Thus, gold price today is only slightly off its lows about 10 years ago (by a mere $1,000) and very far from $8,500.

    Even if we assume a liberal 50 percent error in ShadowStats estimate of dollar depreciation, we would not even think of selling gold until price exceeded the $4,250 to $12,750 per oz range, for new real highs.