Deck is stacked against shorts
Plan accordingly. See last month’s post “Watch Out Bears, Inflation and Bailouts Loom”. I exited most shorts in March, and April hit most other stops. The shorts I still do hold burnt me like a scalded chimp, as Jeff Macke would say. But good longs have absorbed that damage. As I wrote then:
That’s the problem with being short this market, it’s completely dependent on the whims of Geithner, Bernanke, and whoever else is whispering in Obama’s ear. Some might even describe the situation as akin to stabbing Adam Smith’s invisible hand with a rusty screw-driver. But investors have to deal the cards we’re dealt, so we’ll move on…
I dipped my toe back into short funds last Friday, as noted here. Fundamentally the market is extremely overbought and overvalued. We all (consumers, gov, corporations) are bloated with debt. That has to be resolved, eventually. And there will be some serious pain. There are really only two ways to take care of this debt: higher taxes (and less consumer spending), or massive inflation.
Inflation is much easier to pull off politically. Nobody likes sky-high taxes. Inflation is makeup for a crap economy. That’s why I’ve been bullish on gold/silver. The inflation argument has thoroughly won me over.
On that note, I bought some Goldcorp (GG) today. Balance sheet and valuation look good, and Bill Fleckenstein likes it. I have a feeling there’s a lot more Quantitative Easing coming, and gold is arguably best hedge available. Silver’s good too, and platinum, and palladium (though the last two are exposed to car manufacturing).
If Geithner gets canned, watch out below
#1 – If Geithner gets fired and replaced by a realist, or someone who understands the dangers of moral hazards, watch out below equities. Sometimes it’s necessary to take pain in the short term to have an honest long-term market. Right now our economy is corrupt and skewed. For now, Obama has been taken in by the bankers. He’s supporting their destructive mission. But if his belief in their crooked ways falters, and I think it might, watch out below.
5 Comments
the club will keep pushing it higher, no reason we can’t have a big bear rally. ride the trend, short when it fails. we’re getting closer.
True — it is very risky to be short, particularly to be short the general market (via ETFs or some other way), as there are powerful forces working against you.
[...] fundamentals look bad, fighting the strong forces pushing the market up is silly. See May’s Deck is Stacked Against Shorts piece. It’s important to not fight these moves (for long at least). I try out short positions [...]
I think it’s interesting that you actually think that obama is trying to do the right thing and is taken in by investment bankers etc, I think obama and his group know exactly what they are doing and are polling weekly to see just how much the taxpayer sheep in america will take. i think they will use a combo of taxes and inflation and it ain’t going to be pretty. Many young people that voted for obama and sincerely thought they were doing the right thing will pay dearly with jobs and opportunity as our nation is brought to its knees. Of course this could be cured in elections if the people admit they made a huge mistake.You are right this will also take sacrifice and this is kind of what people were trying to get out of when they blindly voted for change that had no plan stated.
[...] the effects of government-mandated recklessness. A few days after I bought GRZZX in May, I wrote The Deck is Stacked Against Shorts. A month earlier I warned bears that More Bailouts and Inflation Loom. Shoulda been bargain hunting [...]