[rseiser]

Guys,
I just got an e-mail from my friend who is the best contrarian indicator I know. (He was able to buy some stocks at exactly their top.) He was just passing along the bad news about NEM and that he thinks it will drop to $30 or even $20. Coincidentally, the e-mail came minutes before gold rallied to $600. Could this be the bottom in NEM again?

[rseiser]

“The stock market is perfectly efficient in giving us a real-time representation of all the irrational minds.”
R. Seiser, Nobel laureate (in spe), 2030.

Haha, so the efficiency of the market is actually quite useless.

[rseiser]

I understand that you mean just price increases. But in addition, do you think the Federal Reserve will also act normal in the next years, haha.
Overall, I think agricultural prices might have more room to go up just as the main article showed that they are so connected with all other costs. And overall they are probably behind a little right now and need some catching up. In an inflationary time like the 70s everything comes in waves, so not everything is rising at the same time. But everything rose more or less over the whole time-frame, like gold, oil, materials, sugar, …
I guess the proverbial “A rising tide lifts all boats” will be with us for a few more years in commodities like Jim Rogers believes.

[rseiser]

asianautica, regarding
I don’t see what’s wrong with follow the crowd and take advantage of the sheeple created bubble. As long as you know it’s a bubble and get ready to sell at the first sign of weakness.

Sounds probably easier said than done, especially for someone under 30, haha. Not sure how easy it is to still make money once the crowd is on it. There are quite some transaction costs involved including time and psychology, and certainly it’s not creating much for the overall system. Think of the Japanese people. Wouldn’t you agree, they would be better off, if they wouldn’t have all jumped on the bandwagon in 1987-1990?
But if you can personally do it, hats off. How about this: When the crowd is onto gold in a few years I will notify you and we can both hop on with some speculative position. Then, on the first sign of weakness you will let me know when to hop off. Let’s see how well it will work out for us.
Deal?

[rseiser]

I have some more, but you already gave the best yourself:
1) Never follow the crowd into a stupid bubble like oil, stocks, or real-estate have been in the past. This is of course the famous “contrarian” stance. First, we are not in paradise, and it would be impossible that everyone is getting rich without the equal amount of production. Second, you could never get a good price if everyone else competes with you for buying.
2) Use your own brain. If someone tells you that Y goes up because of X, just think it through yourself. Does it make sense in island economics? How did it do in history? Did it work in reverse, i.e. Y going down when X went down. There is so much nonsense on TV these days that can be dismissed immediately.
3) Don’t rely on any government program for your retirement. The rule of thumb I use is to put aside the amount per month that I want to live on later (per month, in today’s dollars). It works amazingly well. Say, I think $2000 would be an ok retirement nowadays. I now have to put aside pretty much $2000 every month (in various programs). The gains I make after tax are probably just around inflation, and if I work for 30 years, then it will last exactly for 30 more years, give or take. Sure, maybe I beat inflation a little, or maybe I work longer. But maybe I live a little longer too, or just live a little better. My point: The money can only come from you. The government and nobody else can pay anything that wasn’t created. If they print money it will just go into increased prices.
4) Of course, use the best vehicles for your savings, e.g. diversified investments, and max out Roth and IRAs.

[rseiser]

Hi mydogsarelazy,
I think your post is quite long and involved, and I can now write you ten pages of rant too. But let me just point out a few observations.

[rseiser]

We were discussing if rents would rise or fall when real-estate drops. My personal conclusion was that rents might rise in the short-term, as there is a shift of people to the now fewer apartments while some condominiums are for sale and empty. Also, inflation would keep driving up costs and therefore somewhat rents.
In the long-term, rents might stabilize or come down a little (in the hot markets anyways), as basically a lot of houses were built (due to speculation), and now people down-size (due to economic weakness). Here, the same number of people require a lower number of houses or bedrooms. An owner who got an ARM on a house might try to rent out a room now to make his resetting payments.
So far, rents seem rising. I live in a 1-bedroom in Irvine, and my rent will increase from $1465/mo a year ago to $1610. There has been some painting of the complex, but this has resulted in immaterial improvement.
I guess, I will call it quits now and will try to rent a room in a 2-bedroom or house. I am thinking of trying to find a home-owner, who got over his head, and now wants to rent out part of his his house. Any suggestions, other than checking Craigslist?

[rseiser]

I totally agree with Powayseller, and with the arguments she made. I also don’t see any trick anymore left. Interest only loans/ARMs are in effect already infinity-time-frame loans, so even the 40-50 year mortgages wouldn’t make the current payments any cheaper. Also, there has been so much money taken out of real-estate rather than put in, so bailing out the home-owner by subsidies would take out even more money, and really throw good money after bad. So something like lowering interest rates again to 1% wouldn’t fly anymore IMO, especially since the inflation-monster will at some point raise eye-brows.
If anyone knows another trick that is left, I would really be impressed. But maybe I am not imaginative enough.

[rseiser]

I have been shorting QQQQs for a while and quite frankly not made the big bucks yet. I have done OK, since I was writing some options occasionally either on the tops or bottoms, and I usually kept the premium, since they expired in my favor. I have two arguments for shorting QQQQ.

The first is that I am an engineer, and I know a little bit about the technology business. It is very, very difficult to make money as a manufacturer, let alone for an investor. There is so much competition, and prices are falling all the time as things get obsolete. The problem with that is that there is not much real growth, since if companies would sell the same stuff every year, they would make less and less money, so they really have to develop new stuff all the time. Contrast that with an Old Economy business, where prices usually go up every year, even if the product doesn’t change much. So in technology there is a lot of effort wasted or inventory written off, and among five competitors one might make good money, but then the other four lose. It is also a sector where people don’t know much about it, and this makes it prone for hype, where everyone recommends it as the newest technology, and management takes all these bonuses and stock-options etc., and have becoming cheerleaders in promoting their stock. In the end, what counts are earnings and dividends, and I just don’t see much of that. I think the rally from the 2003 bottom was just a relief rally, and not much has changed long-term (only short-term).

The second reason is the low volatility currently on the VXN. This makes it fairly cheap to buy put options, e.g. at-the-money ones, and especially on the index instead of individual companies. My thinking is that if some companies start going down, everybody else in their wake will too, e.g. Best-Buy/Dell/Intel/Applied Material etc., so there is no need to try and pick individual companies (see 2000-2002).
There would also be more downside in the Nasdaq than in the Dow if we really drop, and some people, like Jim Puplava actually like the Dow, since the companies have more reasonable P/Es and dividends. They also tend to be multi-nationals, so a drop in the dollar might not affect them at all, and they might actually rise a bit during inflation. Sure, going long might not make you much since you might gain 5% and inflation could be 7%, but if you are short, you really show a loss of 5%.
I also shorted as much as I can of CLM which has a lot of Dow stocks and trades at 52%(!) premium above net asset value. I think this is insanity pure.

Regarding entry-points, I am not the right person to ask, and regarding the rally, I think there could be one more. But if there ever was a market-crash at all, I get more and more the feeling this could be the right time. Stocks making almost all-time highs with no fundamental improvement in sight, a housing market soon drawing everybody’s attention again, and it would only take one surprise warning of a big player (car-maker, big financial institution, INTC) and all hell will break loose.

These are just my personal opinions or feelings, so far from predicting the future. But if you ever want to insure yourself against down-side, that has to be it. If we have another 2-3 years downturn, it will be too late to do it half way through.

[rseiser]

Poway,
if the Midwest drops further AND the Fed drops rates to 3%, maybe I buy a house in Omaha and move there. And I will open my own fund next to Warren Buffet, haha.

[rseiser]

Thanks vrudny.
Also, if anyone has experience with a brokerage account in other countries with strong currencies. I heard Singapore is one prime example. Others could be Canada, New Zealand, Japan, or Switzerland.
I myself have a brokerage account in Germany, and I always buy U.S. (e.g. mining) stocks. It is true that they are also a little behind in most aspects, but I think one can also short now.
But I don’t like the Euro much better than the U.S. Dollar. I think the Europeans have no balls when it comes to tightening, and they will just follow the U.S. Symptoms are the ongoing deficits and the outcry of countries like Italy for devaluation. Only the balance of trade looks ok.

[rseiser]

Regarding the mutual funds investing in China. I guess, the common theme should be that they contain more domestic than international companies. Take for example Taiwan or Japan. It wouldn’t make sense to invest in multinational electronics or computer companies, since they have again their sales in the US, and will show lower earnings if the dollar drops.
Second, you probably have to pay higher taxes here, since the currency gain adds to your capital gains. With the bank-account in China, I suppose you can at least postpone the taxes on the currency gains, if not completely avert it when claiming gains in RMB (Sections 985 and 989(a)?). Or make sure you own them in an IRA.

[rseiser]

vrudny,
since you are so well versed, I have a question on shorting. Since you have some account in China, could you think of using a foreign account to short QQQQs. This would sound like a safer way for me, since either the US stock market goes down, or the dollar drops (or both). This way you wouln’t have to fight an uphill battle against inflation, should it occur. I understand that put options, if they are available on foreign exhanges, wouldn’t be any better, since they might already price in the additional risk of dollars. But shorting on a foreign exchange should be easily possible. Any experience on that?

[rseiser]

This is all just my biased opinion, since I am obviously talking my own book:
Overall there are still going to be many unwanted side-effects. The obvious one would be inflation which probably explained the previous period mentioned. Maybe house prices didn’t drop in the 70s, but every commodity, e.g. gold, did much better. That’s why one should hedge for inflation somewhat if one doesn’t have a house.
The next wanted or unwanted consequence could be that house prices in the Mid-west would rise slightly, while bubble areas would still drop. This would bring them back in line with history, and also speculators (riding the trend) might help this adjustment.
Regarding the long-term rate, and especially the MBS market, those might at some point cave and point to higher rates, if inflation is obvious, or foreclosures do their damage on risk premiums.
Short-term rates in the form of ARMs might not be popular anymore either, since if anyone got in trouble it’s the one with an ARM, and people might be too scared to jump in on that one again.

[rseiser]

I think gold is more of a hedge in case the 50-70% drop in housing doesn’t happen. This kind of drop would be such a disaster that it is likely that the government will print money and try to limit it to a 30% drop. This would boost gold by a very substantial amount. Certainly worth the chances, when compared to the alternatives.

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