Comments by DPM on March 23, 2009
I am in a house where the temperature has been falling for the last 15 minutes. Should I panic and sell the house
before I freeze to death?
Answer: No, such a condition has been anticipated in close to 100% of the houses in the USA and a temperature
monitoring mechanism has been installed which will detect a low temperature and automatically turn on a heater.
When Y2K was deemed to be a problem, my observation is that multilevel thinking should be applied.
Threat detected.
Q1: Are people aware of the problem? YES
Q2: Are people in power able to do something about the problem? YES
Q3: Are they actually acting in time to avoid the problem? YES
Q4: Will the money being spent to avoid the Y2K problem cause some dislocation in the stock market? YES
Q5: How can we make money from this dislocation?
Answer 5: We should note that the “dot com bubble” is really a bubble caused by acquiring computer and associated
instrumentation in order to avoid a Y2K problem.
Such acquisition should stop on January 1, 2000. This would mean that we should sell all high-tech stocks at that
point in time. We should also consider buying puts in high-tech stocks.
The money supply is being expanded by the FED.
Q1: Should we panic and buy gold?
To answer this question, we ask questions similar to those above:
Q2: Are people aware of the problem? YES
Q3: Are people in power able to do something about the problem? YES
Q4: Are they actually going to act in time to avoid the problem? We are not sure, but since so many people are
talking about the problem and since gold has gone up dramatically in anticipation of such a problem, we must be
careful that we don’t have another Y2K situation where we are preparing for the disaster of computers failing because
their software cannot handle the rollover to the year 2000. In fact, as stock and commodity traders we look for the
common human mistake which is made when many humans think that they know something that Ben Bernanke
doesn’t -- namely, if he is not careful, inflation will occur and perhaps hyper-inflation might occur. Not only is
Bernanke aware, but Paul Volker is sitting next to the POTUS and is ready to point out such a problem should it
raise its ugly head.
You could call this argument “contrarian”.
Some other questions: Is Tim Geithner an idiot? Does he understand how serious the problems are? Is he capable
of doing something about it?
Recently many people were doubting Tim G. After his interview on CNBC today, many people felt relieved and the
market kept going up when he spoke as opposed to last time when it went down as he spoke.
It is nice to try to predict the long-term future, but the market is a stochastic process with enough randomness to
make it difficult.
Peter Schiff is making money by claiming that he saw this down market coming. Problem is that people who
invested with him have lost a lot of money.
This market bottomed out when Nouriel Roubini finished his world-wide tour. People who went triple short after
hearing his last lecture are hurting today as the market has gone up 20% from there. If you were triple short the
financials as Roubini finished his tour, you are suffering even more.
This is a hard market to play.
Buying gold a few years ago was smart because the powers that be didn’t see the housing bubble and other
problems. Now that the skeletons are “out of the closet”, one must ask themselves, “What is it that I know that the
Bernankes and Geithners don’t know?”
Who are you listening to for advice? Does that person publish a portfolio and update it? How have they done? Were
they still bearish when this market bottomed and was ready to roar upwards 20%? If what they do is to mention a
bunch of trades and then brag about the ones that worked, I would advise you to stop taking their advice.
don
I am in a house where the temperature has been falling for the last 15 minutes. Should I panic and sell the house
before I freeze to death?
Answer: No, such a condition has been anticipated in close to 100% of the houses in the USA and a temperature
monitoring mechanism has been installed which will detect a low temperature and automatically turn on a heater.
When Y2K was deemed to be a problem, my observation is that multilevel thinking should be applied.
Threat detected.
Q1: Are people aware of the problem? YES
Q2: Are people in power able to do something about the problem? YES
Q3: Are they actually acting in time to avoid the problem? YES
Q4: Will the money being spent to avoid the Y2K problem cause some dislocation in the stock market? YES
Q5: How can we make money from this dislocation?
Answer 5: We should note that the “dot com bubble” is really a bubble caused by acquiring computer and associated
instrumentation in order to avoid a Y2K problem.
Such acquisition should stop on January 1, 2000. This would mean that we should sell all high-tech stocks at that
point in time. We should also consider buying puts in high-tech stocks.
The money supply is being expanded by the FED.
Q1: Should we panic and buy gold?
To answer this question, we ask questions similar to those above:
Q2: Are people aware of the problem? YES
Q3: Are people in power able to do something about the problem? YES
Q4: Are they actually going to act in time to avoid the problem? We are not sure, but since so many people are
talking about the problem and since gold has gone up dramatically in anticipation of such a problem, we must be
careful that we don’t have another Y2K situation where we are preparing for the disaster of computers failing because
their software cannot handle the rollover to the year 2000. In fact, as stock and commodity traders we look for the
common human mistake which is made when many humans think that they know something that Ben Bernanke
doesn’t -- namely, if he is not careful, inflation will occur and perhaps hyper-inflation might occur. Not only is
Bernanke aware, but Paul Volker is sitting next to the POTUS and is ready to point out such a problem should it
raise its ugly head.
You could call this argument “contrarian”.
Some other questions: Is Tim Geithner an idiot? Does he understand how serious the problems are? Is he capable
of doing something about it?
Recently many people were doubting Tim G. After his interview on CNBC today, many people felt relieved and the
market kept going up when he spoke as opposed to last time when it went down as he spoke.
It is nice to try to predict the long-term future, but the market is a stochastic process with enough randomness to
make it difficult.
Peter Schiff is making money by claiming that he saw this down market coming. Problem is that people who
invested with him have lost a lot of money.
This market bottomed out when Nouriel Roubini finished his world-wide tour. People who went triple short after
hearing his last lecture are hurting today as the market has gone up 20% from there. If you were triple short the
financials as Roubini finished his tour, you are suffering even more.
This is a hard market to play.
Buying gold a few years ago was smart because the powers that be didn’t see the housing bubble and other
problems. Now that the skeletons are “out of the closet”, one must ask themselves, “What is it that I know that the
Bernankes and Geithners don’t know?”
Who are you listening to for advice? Does that person publish a portfolio and update it? How have they done? Were
they still bearish when this market bottomed and was ready to roar upwards 20%? If what they do is to mention a
bunch of trades and then brag about the ones that worked, I would advise you to stop taking their advice.
don
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