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Get Real or Go Home

Published on October 24, 2008

Get Real or Go Home

October 24, 2008

It took almost 5 years of Bull markets for Auzzie $ to reach its peak against US$ and just 5months to give it all back. The picture is not so much different for British Pound as well. The once mighty US$ is back with full force, against all convetional wisdom and doomsday forecasts, and almost all currencies have given-up vs. US$ except JPY. The 2nd largest economy’s currency is standing tall against US$. It has appreciated to 95 a U$, a level not seen in the last decade. Billions, if not trillions, have been made or lost in the Forex markets in past couple of weeks. It’s going to be ugly for the Corporate America who has been posting wonderful results supported by rising demand particularly in Asia, together with depreciating dollar. Strength in dollar is going to hurt profits, hurt exports, as the mix is changing and it’s changing dramatically.

The financial landscape is becoming more and more fearful and interesting. Gold is oversold, and down to fresh yearly low in spite of the fact that there will be massive money supply into the markets and rates are headed down. Don’t be surprised if you see fed rates going below 1% (I know this is foolish forecast) but hey, we are not talking normal times. Great devleraging is taking place. Read this to get a broader perspective of how deep and wide will be the pain of de-leveraging. 

The fear reigns. To borrow words from old time market veteran respected Richard Russell of Dow theory-

I’ve been watching the stock market on a daily basis since the late-1940s, and to tell you the truth, I’ve never seen anything like this market. I did a double take when I checked the VIX after the close of yesterday’s session — it was up 16.54 on the day to close at the ridiculous high of 69.66. Even the traders don’t know what to make of this monster bear market. The daily action has become unreal. Three to five hundred point changes in the Dow have become commonplace. The wrath of God seems to have descended on the NYSE. Where have we gone wrong? In my mind I ask, “Is this the heavens telling us that massive borrowing is wrong, that mind-bending debt is wrong, that Federal Reserve Notes — fiat money, is wrong? Is this a curse of our Founding Fathers, warning us from their graves that we have strayed too far from the great Constitution that they gave their very blood and lives for?”

Moving on to stock markets, I have been hearing all talk about the market bottom. A few days ago, I wrote on InvesCafe

B careful of data u read, rarely u see devil’s argument in presenter’s data, e.g a bull advocate will hardly say why it maybe bear as well. I am worried. There is so much optimism that Friday was bottom. It will be nasty surprise to many if it wasn’t.

The support and resistance levels are guides only for random distribution of market activity on a sheet that’s called chart. These become investing methodology called technical charting and analysis as many people, including me, start to follow these actions. Why do you think it’s a bottom? based on past data or so. Why can’t it decline below so and so level? because of this blah blah reason. Get this clear, fear knows no support, nor it knows fundamentals else there will be no Warren Buffett. Even on a bell curve, we have something called “Outliers”. Why can’t this be an outlier? Why do you discount that possibility?  

Ladies and Gentlemen, this is your money. This is your capital. You can make money if you preserve this capital. Don’t fool yourself calling a “bottom fisherman” as no one knows where is the bottom. Yes, there are great bargains and insane stock prices (3 times cash on hand vs. current stock price, almost 1/3rd of the Net Asset current Value; plants and fixed assets are for free, yes, yes, yes I know and purchased some of these!!!). You may choose to play in the market like Buffett does, but make sure you have steel guts (oh even steel is oversold as well) and you can sleep (eat and live as well) if the markets were shut for 6-12 months.

As of this writing Nikkei, the barometer of the 2nd largest economy in the world, Japan, is at lowest levels seen in a quarter of a century!!!. Well they are Japanese, we, the US, are different? 

This is not a doomsday forecaster, I am like one of you my readers who want to preserve his capital. Get real or go home, for if you are real you can make real plans for real you.

Take extreme care and profitable trading, OP

2 Comments

  • Avatar Andrew Knight says:

    Hi OptionPundit,

    I’m emailing you in regards to an email I sent to you last month about a partnership, have you had a chance to think about it?

    If you have any questions or would more information, please advise me and we can go from there.

    Kind Regards,
    Andrew Knight.
    Website Manager
    Banking & Finance Division
    Asia-Pacific Region

    OMG.com.au Pty Ltd
    P: (+617) 3368 2666
    E: andrew.knight@omg.com.au

  • […] am publishing an article here that was written for OPN subscribers on Oct 17, 2008. (I published one different version on this blog as well) We all know what has happened since then. The key objective of sharing this is not talk […]

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