Easter Timing Question

By: Hans Lysglimt

As I write this on the morning of April 7 2009 I am still considering when to enter into more aggressive short positions. We are still heavily in cash, gold, gold shares and short positions. Our shorts have been hammered in the late surge in confidence. The strength of the confidence has surprised us. Some of our short positions have been obliterated to zero. The Swedbank put option we explicitly recommended in early April has gone to zero – 100% loss. Fortunately we warned not to go into it with more than 1% of your portfolio, still that is a 100% loss on that 1%.

Since we recommended selling everything and holding cash in November 2007 we have been confident in the direction – down. What has been difficult to get right is the counter moves, the surges in confidence and the moves of the increasingly desperate politicians and central banks to counter the downward trend and the extent to witch the markets have believed them. So again and again we have made very very good profits, only to see large parts of the profits evaporate in the counter moves upwards.

What we should have done, again and again was to sell on high confidence and buy on low confidence. We’ll see if we can get it even more right going forward.

We are confident that the markets will see new lows. You see this is a depression, not just a recession. A depression is a rearrangement of the economy, creative destruction in massive action. Once the depression is a fact it can not be stopped, the creatively destructive forces are self reinforcing and need to be played out.

Spending will be replaced with savings.
SUV’s will be replaced with smaller cars, electrical cars.
Mainstream TV will be replaced with online internet video.
Newspapers will loose their subscription base and fold.
New internet new sources will arise.
Political power will shift with the media change.
More banks will go under.
More financial institutions will be taken over.
The big three auto makers in the US will bankrupt and be broken up.
The massive increases in the monetary base will set in motion new bank lending and higher inflation.
Higher inflation will raise interest rates, and this will destroy capitalization values of bonds, houses, stocks.

The madness of our generation will be unwound.
The masses will settle at a new psychological level of much less confidence.

These all are processes that take time. But the wheels have now been set in motion, it can not be stopped. The politicians can delay it, at enormous cost, but not stop it. Five years from now the big three auto makers are goners, no matter how much money Obama throws at them, burdening our children. The smart thing would be to just let it happen, but they won’t do the smart thing just happen – they never do.

“There is nothing more powerful than an idea whose time has come.”
— Victor Hugo

There are a number of ideas that are just starting to have their time again:

- This time is different, this is the big one.
- My pensions entitlements are not “real” savings, there just unsubstantiated “claims”, in the best case just bookkeeping records.
- The government is not omnipotent.
- Obama is not the second coming of Jesus Christ.
- Paper money is just, paper.
- Gold is real money.

We will see a new kind of economy, a new kind of society, in a few years time, when the dust has settled. In the meantime, we will see increasing volatility and certainly new lows.

We might aggressively sell today, we are still watching the markets, deciding on this. Gold is obviously cheap at USD 878 right now. We have been buying into gold at USD 280, USD 300, USD 400, USD 500, USD 600, USD 700, USD 800, USD 990. So why not buy some at USD 878 too?, just to average out.

The surge in confidence it unjustified. You should sell into it, sell whatever shares you are still holding. Sell that second home, and sell the boat – while there still is demand for such things. The risk is clearly on the downside, and the odds for a successful short position is now getting ever more clearly in your favour.

Yet, the timing is the key. On that, you are on your own.

Hans Lysglimt
Oslo, Norway.
April 7. 2009 at 10.00 CET

Comments in the forum in the thread with the same title.

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2 Comments

  1. Kris
    Posted 17 April, 2009 at 11:57 am | Permalink

    The article ‘Nature of this bear market rally’ was a good one. There was no expression of short term gambles like ‘short now’ ‘stock market will go to 8000′ ‘upturn ended this friday’ etc.

    Nobody has EVER managed to do this right in the long run. Maybe Geir is right once, then he is wrong the next, just as he has been. Then Farmann is right once, then wrong etc.

    Focus on the longterm view, 2010,2015-2020. That is much easier and probablyh only thing that can be atleast forecast with some correctness.

    It’s always like this. In the 90′s Abby ‘Bullish’ Cohen was the guru, right on everything. Now she is wrong on everything and Peter Schiff has been right.

    I would still say like Warren Buffett, going into the greatest depression? Answer is ‘we don’t know’.

    But yes, I presume this will be a severe downturn in the wes for many years. Prosperity is not built on debt. But if USA goes back to little goverment, little regulations, free markets and low taxes, there is hope. Will it happen? Not in this round, but maybe from 2012?

    I don’t believe the old ‘Farmann’ was about going around with trading ideas. So shouldn’t the new farmann do either. I guess, in 2010, if reality sets inn, another reality from Farmann will also be appearing. Never do a short term prediction twice… you will always be wrong.

    Normally bear markets lasts probably just long enough so that everyone sucks in. Maybe it even lasts so long that Geir starts doubting the depression :)

    Markets stay irrational longer than you can stay sane…

  2. Farmann
    Posted 17 April, 2009 at 1:22 pm | Permalink

    Kris,
    Thanks – took the liberty of moving your comment to the forum thread:

    http://www.farmann.no/forum/showthread.php?t=5584