Lonely
October 27th, 2007 by 
reality
Mark Cook: “My grandfather once said to me, Mark, sell what everyone is buying; buy what no one wants and you will be a success. Well, Mark D Cook has sold this stock market. I will buy but it will be when the S&P futures is below 1100. I am the lone wolf of bearishness.”
Mark, actually, you’re not alone. I don’t generally take tips but Mark is a very experienced, serious and careful trader. When M. D. Cook speaks, I listen. And if we are on the same side of the market, even if I’m wrong it is a little bit of consolation to know that one of the best in the business is wrong too. Makes me feel a bit less of an idiot.
Posted in Stocks | 
October 27th, 2007 at 8:35 pm
Well, Mark is certainly not the lone wolf of bearishness even though he feels it. In fact, I think the financial establishment is EXTREMELY concerned and consternated that the general markets are not behaving the way they used to. The truth is weblogs since 2000 have changed the fundamental nature of communication of information in the world of finance: the establishment no longer can reliably and wantonly use misleading information and statistics to fool everybody, and it no longer dominates the distribution of information and intelligent analysis. Previously, “good - independent -analytical” information could only be disseminated through snail mail by “good newsletter writers” (then again this is arguable on how we define “good” ]. But with the proliferation of weblogs, different people with different backgrounds and analytical insights proliferate the infosphere - and those who are gifted with an open mind - and a skeptical eye - are able to see all the opinions and analysis out there in the world of investing. The truth is: once REALLY good independent analysis and insights get out there, weblog originators pick it up, add value (or disagree) and the analytical depth just gets deeper to the point where people with open minds who read “good” weblogs, and crappy broker reports, the missives of CNBC, the more balanced info from Bloomberg, FT, WSJ, etc. coupled with timely assurances from Henry Paulson saying, “Look there is really NO PROBLEM. The global economy is juts doing great” mantra, MOST of us know how to process that information and make our own conclusions. And most of us who have done the analysis AND thought about it - are actually in agreement with Mark. Which means there are a lot of independent investors who are on the sidelines waiting for S&P1100, or are shorting the mkt - and are sometimes being killed by the PPT (yes, I know many people do not believe the PPT exists - but Paulson keeps on giving the TELL to the mkts, the Presidential Working Group consults daily with all market pariticpants, and are closely watching the mkts - this is an unveiled warning to bears - Screw with the United STates bull market and we will hand you your balls after every rate cut, and every hedgefund inspired rally given Paulson inside info when the Dow drops 300 points).
The problem is: the US Housing depression will take a big big big bite out of US Grwoth so much that in 2005 - the US government and President BUsh’s advisers were already concerend about it. Look at what they did to see that they already know what is about to happen:
* the y got OCngress to revise bankruptcy laws because they knowe the housing blow-up will result in many foreclosures and will hit banks hard. So revised laws allow the system to pickup more assets over the long term and hopefully reduce writedowns.
* they got Hank Paulson, CEO of GOldman Sachs, to become Traesury Secretary. They needed to have the smartest guy in the best investment bank on Wall Street in place to be reeady to solve the problems when the credit tsunami hit. Goldman, Paulson are WELL AWARE of the mechanics of the whole credit expansion, CDO, CMO, ABX, CLO, MBS, SIV vehicles out there. If there is a blow-up, and if you are the President, who’d you want to fix this damm thing? The smartest guy belonging to the industry that caused these problems. In not a very nice way, if you think of the financial tsunami as a INFOTECH SUPERWORM, that is unleashed in the computer world and it just defeats all firewalled computer systems, who would the NSA and FBI call in to fix it? If possible, the guy who created the Superworm in the first place (probably with a gun pointed at his head, symbolically!).
* They replaced Greenspan with who else? SOmeone who has made a CAREER out of analysing WHY the Great Depression occured and how it could have been fixed had the Fed at that time, not made serious mistakes. Ben Bernanke. His ascension to Fed supremacy despite his weaknesses in that he is not a good political player, means that he is absolutely vital to Pres. Bush - Bernanke can be counted on to CUT RATES FAST, and will follow the lead from Paulson’s PPT. Bernanke is a good team player and can be counted on. The last thing Bush and Paulson would want in the Fed Chairman position is another Paul Volker (in fact, Volker may indeed be the only person who in the ned might save America from another 70’s style stagflation which is coming to the globe after 2008). Bernanke is the perfect maan for the job - as country needs someone who has spent his life stufying how the Great Depression should have been averted.
* Christopher Cox as SEC Chairman plays a vital role as the SEC selectively goes out and cheery picks enforcement action WHILE generally wrist slapping SERIOUS abuses in the backdated options scandals occuring in the MAJORITY of US companies. Options backdating has never been called for what it is in mainstream media. It is plain and simple Executive STEALING from the corporation. It is no different than the CEO asking the Treaasurer/CFO to write him a $100 million check using company funds, and using it for personal purposes - and hiding it as an expense. Cox is also NOT enforcing action against front running done by prime brokers and hedge funds who have been tipped by the PPT and using FED repos to buy Dow futures. When an individual uses a chat room website to pump and dump a stock, he is pursued relentlessly by the SEC. When prime brokers get money from the FED and front run the mkts before the Aug 16 discount rate cut, and the rumours that were used by the financial media and CNBC to pump Countrywide stock and BEar Stearns saying that Buffett was buying - which turned out to be untrue - have not been investigated - and will never be investigated because they are govt inspired. Lots of people wnet long on these rumours and faced a drop-down a couple days later. There is also the rumour of a Fed Rate cut that went on blackberried when the Dow went down 300 points andmiraculously recovered tobeing down only a few points on Oct 24. A hedge fund used the JPY carry trade in concert with probably starting the rumour and bot futures like crazy (this way plausible deniability can be affixed on a rogue third party). It is also probale that a fw prime brokers used Fed repos to push up the mkt. Was it initiated with a Hank Paulson phone call?
* Look at many newspaper websites – see how many now include blog-style comment sections on them. Weblogs especially the good ones – are an extremely serious threat to financial newspapers that dominated infospace previously and served advertiser-biased news and analysis that have misinformed the public. The best insights and analysis on the mkts now exist in weblogs. Even the WSJ and FT have weblog style sections that focus on the analysis on the web as they realized that many of their own financial writers lack the expertise of many GREAT webloggers,, or professionals who can disseminate their information freely in the infosphere.
* Free markets in the United States? You bet - most of the time. But when speculators, wolves and financial highwaymen try to steal money from hardworking Americans who have ALL their retirement money in 401Ks by shorting the market because the US is about to (or have) enter a severe recession, the US government’s view is the view taken by Hank Paulson. “We are watching the markets” - and we’d like to hand you your balls on a silver platter if you dare short the US market - and thereby threaten US security interests. If you look at it that way, and if you were President, wouldn’t you agree, that Paulson is right? That’s the scary part.
* The bottom-line. It is naive for anyone to think that by supporting the mkts EARLY before the tsunami will prevent it from coming. their logic is this. Bear markets usually take 30% off the broad market. If we can push the Dow up another 30%, and if the bear market hits, then with a 30% hit, the mkt will not fall as much. My thesis is this: the more borrowed money and repos you put in the system in advance of a financial tsunami, you actually INCREASE the amount of money and leverage and danger in the system, because you have created non-transparent and naive expectations that all is well, so when the tsunami hits, the FEAR becomes even greater, the dislocation is greater and the precipitous fall is even larger because MORE PEOPLE ARE EVEN LEVERAGED in the end. This is what creates a depression.
* My prediction. Ben Bernanke and all the economists who believed that the FEd made a huge mistake in the Great Depression by not cutting rates earlier will find out in the next financial downturn, that they are wrong. The Greatest mistake the Fed made in the Great Depression was before it happened! It allowed TOO MUCH liquidity in the market and too much leverage in investment trusts that were levered 10:1. The mistake was having too much liquidity before the market burst. In essence, by flooding the market with repos now, Bernake is making the same mistake the Fed made in 1929 - and it will create a larger fire - as there is more money to burn. The year 2000’s is working out to be the exact mirror image of 1920’s.
* What does that mean for people like Mark and for us, “shorties”? That means all of us are extremely wary of this market, and are not comfortable going long. Surprisingly, and Paulson and Bernanke, if you are reading this, Thank you.
So long as shorties don’t get killed in the process, After Jan.8, 2008 when4Q results start coming out - now with a NEGATIVE S&P 500 cumulative earnings season, if the mkt goes up higher, YOU WILL MAKE MORE MONEY BEING SHORT!
* But one thing. Do not over-leverage and DO NOT HOLD leveraged positions and add to them when the mkt falls precipitously - as the PPT will cause counter-rallies. If you add to shorts, you will get killed in a bear mkt rally..
* My Strategy: Hold one position short for the duration of bear mkt - this position should not be more than 100% of your funds. Just hold on to that. If you like, don;t do anything until October 2008 (but follow the mkts). If you go above 100% leverage, ensure that the amount that is over 100% MUST be taken off as profit whenever the mkt falls 5% or so. DO NOT ADD TO THESE POSITIONS as a counter rally will kill you. Paulson and his testicular cutter will be in play. Once the mkt rallies and it will establish a short position slightly above where you covered - so you get to eat the cake twice. If it keeps on going down, don’t fret and don’t get greedy. Laugh that you made some pocket change. The rally will come - I assure you. You also make money on your position short - so that keeps you happy. After the rally comes up, wait, wait, wait, then re-short. HOLD as the mkt will turn over. Repeat. You might be able to do this two or three times in 2008. This is all you can expect to make in a bear mkt being short. Then stay in the sidelines, and wait to go long again. You will be able to see S&P1100. I also agree with Mark’s number.
* If you get greedy and go in with a big short position after the mkt goes your way and goes down, you will get killed by a rally.
* How do I know? My portfolio was up 48% on August 16, 2007. It was -20% on Oct 11, 2007 at Dow highs. It is now -2% as of Oct 26. If I ahd not been lucky managing my shorts, I’d have a lot less money. I say, “Lucky” because I could have lost a lot more - but made it back.
* If you do not have the heart to trade a vicious Bear mkt, do not do so. Stay on the sidelines and make money on cash. It is really that tough to go plus in a vicious bear mkt. That’s why mark is on the sidelines and I respect him for it.
* You are right. I want to take on Paulson - and I’ll know whether I’ll come out with a plus on my trading portfolio by the end of this bear mkt next year…. That makes me quite foolish to take on the might of the US government in finance - so I’ll have to prove it….
* When the mkt gets more vicious and the mkt drops, LIGHTEN UP ON YOUR SHORTS BY TAKING PROFITS. DO NOT ADD - or you will get killed in a rally.
* Go get yourself some software and printout the S&P500, Dow and Rusell 2000 from October 2000 to December 2003. Look at the different patterns in the three, and look at the rallies. Calculate the percentage drops and rises in the curve, and postulate what your wins and losses would be, if you were leveraged above 100% at different points in the curves. Look what happens if you shorted at a trough and the mkt rallies 15%. You will see that Bear markets are to be respected. That is why Mark is on the sidelines.
* Most speculators - long or short - lose money in bear markets. Prime Brokers who trade for their own account make the majority of the money in bear markets as they have inside information (even more so this time with Paulson ADMITTING that he is “talking with market participants on a daily basis), the collude with each other, and they have massive amounts of leverage that they can use the market to GO in their direction.
* Anyone may choose to disagree with me. But that is what makes markets. Him on the one side. Me on the other! May the guy with the balls of steel win….
October 28th, 2007 at 9:15 am
Win one for the Gipper, Robert!
In the meantime I will try to eke out ten more percentage points before bugging out for the financial burnination of 2008.
The big question is where to hide while the dollar declines. Gold? Oil? Foreign treasuries? A bomb shelter? All of the above?