Stay Diversified – Stay Diversified

By: Hans Lysglimt

So, the cat is out of the bag. The FED will buy treasuries directly. I hope everyone realises that this is the official beginning of the end for the dollar. The dollar will be diluted out to next to nothing, in our lifetime. There is no turning back from this point, the damage has been done. We will see the first 300 billion grow to 1 trillion, 5 trillion, 10 trillion and beyond.
As a consequence gold will soar, or more correctly – gold will stay the same but require more dollars. The dollar will fall against gold. We will see gold go to 1000, 5000, 10 000 and beyond before we leave this planet.

Gold jumped USD 67.8 on the news yesterday, which tells us that it was not expected, which further tells us that the market is still way out of whack with what is going on. A 7.7% jump in gold is dramatic however you look at it. The markets soared, they think this is salvation – when it actually is the beginning of the end.
This surge in confidence will end soon, and end abruptly. I do not know how long this rally can continue, it could go for months. But I have predicted that it would reverse this very week, so I will stick to that, at least this week.

Our recent recommendation to you dear reader Goldcorp Inc in the US soared 10%+ yesterday. It has recently fallen a few percent, and the dollar also fell a few percent yesterday against most currencies (as it should). All said we are about even, EVEN, in such rocky seas we have managed to go even. We think that is pretty good.

We can not emphasize enough the importance of being well diversified now. The politicians are on tilt, they will try anything and do anything to stay in power an implement the new world order. Expect extreme volatility. There is nowhere safe to hide, you are going to take hits, and you are going to make spectacular gains. You have to even this out.

I expect the market sentiment to turn ugly again at any time. This will lead to a dramatic fallback in the equities markets. But, the dollar I expect to rise on this again, as it has risen in every down leg so far. I even think Bernanke speculates on this, he knows the dollar will gain strength again when the markets turns. So he launched a quite modest treasury buying now (why so modest? reflect upon that), and as the dollar strengthens in the next down leg he will simply announce that the program is increased from 300 million to two trillion. Pretty clever moves, if we may say so. Remember, we never said Bernanke was stupid, just ignorant, arrogant, nescient, bearded, imbecile and many other things – but never stupid.

So stay diversified, yes even into some dollar assets. Your diversification is your #1 protection against the madness. Work on your diversification, I can not emphasize this enough. Both as to asset classes, but also institutionally – DO NOT KEEP ALL YOUR ASSETS IN ONE BANK OR TRADING ACCOUNT – banks will go bankrupt en masse.
You should be very well diversified, and then work on what parts of your diversified portfolio your should be over exposed in and what part you should be under exposed in.
We recommend heavy over exposure in cash and gold and major underexposure in equities, real estate and bonds – we have done this since November 2007.

There will be a time to short the equities markets coming up shortly (excuse that one). I would much appreciate your thoughts on how and when to best do this.

Oslo, Norway.
March 19. 2009
Hans J Lysglimt

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