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The Lunatics are Running the SEC

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The Lunatics are Running the SEC

In the classic Edgar Allen Poe story, The System of Dr Tarr and Professor Fether, a gentleman visiting an insane asylum learning about the innovative methods of treating the inmates, sees that many bizarre practices are being employed for treatment. By the end of the story, he realizes that the inmates had overpowered their keepers, and the lunatics were running the asylum. The idea is that those that are in charge that should be looking out for society's best interest are actually doing things to hurt us, hence the figure of speech.

We now have several lunatics at the helm of many of our government entities, some in Congress, some in the FED, and some in the SEC.

Yesterday, the SEC cracked down on naked shorting, which in turn has the haters of short sellers smelling blood and demanding even more. Read more in the Bloomberg.com link below, as reported by By Jesse Westbrook and David Scheer:

http://www.bloomberg.com/apps/news?pid=20601087&sid=aPokh6La9.HY&refer=home

If you aren't up for all the reading, I will summarize it for you: much of this market pain is the fault of short sellers, and rules need to be put in place to stop them.

Bear Stearns tanking? Lehman Brothers, Fannie, and Fred going under? Any institution part of the XLF gasping for air? Yep, it is the fault of short sellers. When in doubt, blame a short seller.

For those of you that detect my sarcasm, congratulations. The same people that moan about oil speculators are the same ones that do it regarding short sellers. I have commented on it repeatedly, and one of my first blogs last year mildly criticized those that wanted to blame the abolishment of the uptick rule on market problems:

http://www.investorplaceblogs.com/users/jaudio/2007/09/abolishment_of_uptick_rule_to.php

Every time a company gets hit, you can bet that a short seller will be blamed. It has been this way since short selling began, and history will continue to repeat. The problem is when those in the SEC buy into the myth, spurred on by self-serving politicians like the illustrious Senator Charles Schumer. He wants a reinstatment of the uptick rule (as if that would do any good), and so far the SEC is resisting. Yes, the lunatics are in charge.

Blaming short sellers for the market problems is the mirror image of blaming long buyers for a raging bull. I have an idea . . . let's hang Louis Navellier and Ken Kam from a yardarm for recommending a stock, and actually buying the shares! After all, it could cause the company to launch. This is lunacy, and It makes no sense, even to an insane man.

There are those in the market that engage in pump and dump ploys and those that do the opposite. There are laws in place to hammer them, one at a time on a case-by-case basis. All of this blanket blaming of market turmoil on oil speculators and short sellers makes me want to take a flamethrower to the whole place. I've got a better idea . . . let's invite Senator Schumer to a party and only invite Indymac shareholders. Make sure you bring your cameras, ladies and gentlemen.

In the SLO2, I lost over 50k selling oil short with the now defunct Macroshares DCR. No blaming here, I was just wrong. I am now dipping in my toe to a few companies long including BAC, C, and my hometown bank HBAN. Some refiners have hit the screen, and I am even getting long of the dollar with UUP. My shorts including SKF, FXP, and DUG have been good to me lately, so I have taken profits and am currently shopping for some long buys. The VIX cracked 30 yesterday, so I am looking to get in on the bear bounce we have all been waiting on.

Let's not lose our marbles in this market. Let's stop assigning blame and start being smart. Scared of the market? Stick your money in bond ETFs or go to cash and wait. Scared but sane? Keep on buying or selling the market short, wherever your research takes you. Until then, let's cross our fingers and hope the lunatics won't bring down the whole system.

---Jonathan

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Will China Meddling Save Chinese Markets?

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That's the problem with free markets: when they are making everyone money, they're the best thing since electronic trading. When they are going into the toilet, everyone collectively curses, assigns blame, and jumps out the nearest window--Unless you happen to be in a pseudo-free market, like China.

The Chinese markets are in turmoil right now, clocking a 40% plus loss since last October--and we think we have it bad. For those with money in FXP, the ultrashort China ETF, it's been a money-maker. However, there have been some bumps in the road. Since last October, FXP has climbed upwards of $120 before correcting back to below $60. FXP is now in the mid 80's because of the latest market shock waves, and it doesn't look pretty for the Chinese markets.

Or does it?

The leaders in China have intervened in their market before to give it a bump, and things are shaping up for China to again make an effort to give the market a short term jolt. Back in April, China reduced the stamp tax on stock transactions from .3% down to .1% in order to support the market. The Shanghai composite index then bounced over 4%. This reduction came just 11 months after they raised it from .1% to .3%, put in place to cool the blazing hot Chinese markets, which it did by trimming off over 30% of value. The reduction of the tax in mid April came after the Chinese market had been flat for 2 months and starting to rise. Since then, the Chinese markets have been going up, that is, until about May 15th. Since then, it has been grinding down, getting close to the lows reached in mid-march.

The time is right for the Chinese to intervene, and I am going to protect my profits in FXP with a hedge in the FXI, iShares FTSE/Xinhua ETF.

My 6 month view is that China will go down even further, but with the Olympics coming up, China isn't looking for any bad press, and that includes the markets. China has a big inflation problem, a problem that reached a 12-year high in March, and although it has eased a bit, it is still around 8%. They have the same problems we do with high commodity costs, but government interference with the free market doesn't solve the problem (Jimmy Carter, anyone?). They even have a "weather modification office" that will keep it from raining on the opening ceremonies by way of shooting artillery shells of silver iodide and dry ice at threatening clouds, making it rain before it gets to the stadium. I wish I were making this up. With the propensity to interfere in virtually every aspect of human life, the Chinese leaders can't sit idly by and watch their market go into the tank.

So what are the options?

I'm worried they may take a lesson from the Pakistani playbook and ban short selling prior to the Olympics. The WSJ covered the Pakistani move last week, which resulted in a quick 8% plus boost to the market. If that happens, the FXI will pop and FXP will tank, at least, temporarily. This would be the worst-case scenario for those like me, heavy in FXP. Last March I sold off some FXP, almost hitting the top. As it started downward, I bought positions in the mid 100's, mid 90's and into the mid 80's. By the time April arrived, I had plowed a lot of profits into FXP, taking hits the entire way, looking for the Chinese markets to tank again. Just as FXP turned the corner, the stamp tax was cut and I got crushed down to $60. An almost 30% gain was dead even or at a slight loss in less than 2 months. Now I'm back up to over 10% with FXP, but it's high time to protect profits just in case of some Chinese funny business. Tomorrow I am taking a $30k plus bite of FXI for hedging purposes.

My blogging has been non-existent in the past 2 months due to my efforts to buy a house and having my hours at work increased, defying the sluggish economy. I have a lot of opinions about the current state of real estate specific to my situation, but that will wait for another time (hint***the name jaudio shorts says it all). Kudos to Duffbeer, for offering me some great real estate advice. I followed it, and if the deal works out, I'll come out better than I ever imagined. The advice offered was given at no charge, so many thanks again to Duff. If anyone is looking to buy real estate up in Duffbeer country, don't be afraid to hit him up. He's a straight talker, although he is former Air Force, but I don't hold that against him. Semper Fidelis, even to the Air Farce.

In other trades, I am now long RIMM, SEPR, MAS, IMA, NUAN, and LLY. Although I have lost a lot of money shorting oil, I have bumped up positions in DUG to almost 90K and I have bumped up SMN (ultra short basic materials) to almost 90K. I am a loner with this decision, I know, and the market has punished me for it so far. We will see.

Now it's time to kick back and pray for rain on the opening ceremonies.

---Jonathan

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Throwing Oil Overboard-The Case for $90 Oil

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$90 Oil? Are you serious?

Yes I am. In fact, I jumped on the train selling oil short last week. More about the trades in a bit.

The dents in the armor of skyrocketing oil are already in place, and the stage is being set for oil to fall. Most players are on the opposite side, looking to ride oil past $200 and beyond. I not only view even higher oil prices unlikely, but $200 oil is next to impossible in the time frame being put forth.

My views are simple, based on economic principles that have been around since Cain traded vegetables with Abel.

1. Supply
2. Demand
3. Strength/Weakness of the Dollar

Most of us understand supply and demand. (All of you oil company conspiracy theorists can stop reading now). China wants more oil, the emerging markets are demanding more, and the USA isn't curbing its appetite for oil. We are using up oil as fast as it comes out of the ground. With more people demanding it, the price goes up, of course. Couple this with countries falling behind with total oil output, like Russia, and further price increases are expected. To make the perfect storm complete, oil is priced in US dollars, so as the US dollar weakens, oil creeps upward. Speculators are there to play the game, and they sometimes get caught up in the hysteria. It seems that oil is destined to continue its upward climb, with no end in sight.

If it were only that easy.

The simplified story of oil in the last 12 months that I just recounted above cannot and will not continue. Here's why:

Again, the supply story is a great one. We think of the recovery of oil as drilling a hole in the ground (or the ocean for all of you RIG owners), and then pumping out that dark liquid known as Black Gold. Naturally, oil is recovered in places where the technology allows us to get it, at a price that allows acceptable profit to the particular companies doing the work. As the price of oil increases, it becomes more cost effective to employ technologies that are more expensive than drilling into the ground. Oil Shale and Oil Sands hold a tremendous potential, with more than enough supply to satisfy demand--at the right price, that is. No one can nail down the magic price of oil that will open the floodgates permanently to oil shale and oil sands, but oil won't get to $200 per barrel (in 2008 dollars) before it is cost effective. There are always environmental concerns, bureaucratic red tape, and worries about dropping oil prices that impede this process, but it will eventually get done. Throw in the token clean energy technologies coming on line (although minuscule when compared to oil), and the supply will be satisfied. There is a short-term price ceiling here.

The demand story is probably the most misunderstood of all, with conspiracies, collusion, and myths of intentional sabotaging of technology (the 200 mph carburetor). There are a lot of people that believe no matter what price oil rises to, Americans and other people in the world will not change their habits. They think we will use the same amount of oil no matter what . . . after all, we all must drive to work and such, right? This is short-sighted thinking. We all have an individual mark that gasoline would hit before we change our habits. I can tell you, mine is much higher than most because I live so close to work, so $10.00 per gallon gasoline is probably my limit. I would then bike to work. Everyone has a breaking point, and as a people, collectively, we are setting the price. As the price climbs upward, people change their behavior, that is, they drive less. That includes not taking a vacation that requires driving hundreds of miles, and it means car pooling when going to Jimmy's birthday party. The car that gets better mileage is used a lot more, while the SUV sits in the garage. Whatever the case, behaviors do in fact change as the price climbs. Modification of behavior means less demand, and less demand will lead to price decreases given the supplies stay constant or rise. Rising gasoline prices made me figure out a way to break free of my own dependence on it, and due to my own lifestyle modifications, I now pay no attention to the price. I am an extreme case, but everyone has a breaking point. As the price goes higher, more people reach that point, making further price increases more difficult because of the slipping demand.

The weakening dollar is pretty easy to understand. A barrel of oil is priced in US dollars, and when the dollar gets weaker, the price rises. Likewise, when the dollar strengthens, the price of oil will slip, given the supply and demand factors stay constant in our make believe world in this example. The Wall Street Journal had a great article on the editorial page entitled The FED's Bender in Monday's paper showing the escalation of the price of oil and graphed its price in Euros and dollars. If you missed it, go back and read it. Though there are some stories about the price of oil pushing the dollar down, I don't buy them. A connection of a weak dollar and higher oil exists.

The wild card for the price of oil is how much the recession will cause it to decrease in price. We are at best in an economic slowdown and at worst a recession. This will eventually put downward pressure on oil due to a decrease in demand. We also have the possibility of the FED holding rates steady, which will help halt the slide of the dollar. Even if the FED cuts rates, the consensus will be that no more cuts will follow, so the dollar bears will cash out. Oil is traded globally and demanded globally, and any economic slowdowns overseas, particularly China, will certainly put downward pressure on oil. I'm not about to predict an impending China recession, but the free market doesn't put the rules on hold just because the Commies are at the helm. Oil has been on fire, and it's time to cool down.

So how have I been trading ahead of this situation? I have first held steady in my position of DUG, the Ultrashort Oil and Gas ETF. It is one of the safer ways I have played it, even though it is Ultrashort. DUG will move up and down a few percentage points, sometimes in tandem with the price of oil, and sometimes not. I only have a small percentage of money in DUG at this time, mostly because I am looking for juicier returns with declining oil.

The second position I have taken is in DCR, Macroshares Oil Downtradeable Trust. You won't find a lot of love for DCR when you do research, and the price movements don't follow any rhyme or reason. Since I started buying DCR, I have had a 12% move up, a 10% move down, and today (Tuesday) a 19% move upward. DCR is risky, so with a 2% move upward in the price of oil, you may see yourself 15% in the hole. Tread lightly on this one. I have made money on it trading in and out, but you will need to be able to stomach the volatility.

The third move I have made, ahead of the FED, is selling off a full position in the Mexican Peso, and half positions of the Swedish Krona, Swiss Francs, and UDN, the dollar bearish ETF. I plowed that into UUP, Powershares Dollar Bullish ETF. Regardless of what the FED does, I will be selling off the rest of the foreign currency within a month, but on the off chance the FED holds rates steady, it'll be sold immediately. I highlight these trades because the movement of currency goes hand in hand with the price of oil, and I the moves I am making with currency reflects my view on oil.

It's time to chuck oil overboard. Any takers?

---Jonathan

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Positioning for the Coming Commodities Bust

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SLO players, including myself, have been loaded with great performing commodity stocks and ETFs that have buoyed us in the turbulent markets. Just take a minute to gaze at the portfolios of some of the top 50, and you'll see many with agriculture holdings (MON, MOS, POT, ADM), many with miners (PCU, BHP, AAUK, FCX, NEM, GC), and of course, coal and steel. Commodities have been king, and I am slowly jumping off of the bandwagon and shifting money the other way.

Today I cut my positions in MON, POT, SYT, MOO, and BG. The first three have done well in the short term, and BG popped today. My decision is based more upon my long view of macro-economics than the technicals of each. Ahknaten made a great case of POT being overvalued in his last blog entitled, "POT may be legal in B.C. but . . ." and Vad Yazvinski speaks more about the agriculture plays in his April 3rd entry, so I won't retrace their steps. Commodities, just like everything else in investing, have their ups and downs. The past 2 years have been amazing for agriculture, and miners, but the party won't last forever. To believe that both will continue the march upward into perpetuity, powering through a US recession is going against tough odds. What are some of the reasons cited for the continued climb?

1. Demand from China.
Not a day goes by without hearing about the China boom that is driving up the cost of everything. As long as China continues to grow, some believe commodities will remain resilient even in a US slowdown.

2. Everyone eats, therefore, agriculture will continue booming. Furthermore, as more of the world develops and diets improve, better food will be demanded by more people pushing agriculture even higher.

3. More people are demanding petroleum products, not only in the USA, but China and the emerging markets. Coupled with limited, finite supplies, oil will move ever upward along with any companies connected to the drilling and refining process. This strengthens the case for using other forms of energy, like coal, and higher demand for coal will lead to higher stock prices for those companies.

There are more factors thrown into the mix, of course, but the three above seem to be the ones that are talked about from time to time. I am not about to put forth arguments against the continued climb of commodities, but only because others have done it much better than I ever could. A great article to read is by Eben Esterhuizen on seekingalpha.com regarding this:

http://seekingalpha.com/article/70034-why-commodities-are-likely-to-struggle-in-2008

I do agree that speculators can push up commodities in the short term, but not as a long term trend. I am long on gold with GLD, and will remain so at least for the next couple months because I believe the weakening dollar and the threat of inflation make it a safe haven. Despite my seemingly contradictory position on gold and the basic materials sector, I say all of the above, to make one point, and that is this: If you believe as I do, that commodities have made their run and are on the cusp of falling back down to earth, then you must position yourself to make a profit from it. You can do this in several ways, but my way is staking a position in the Ultra Short Basic materials ETF, SMN.

As I stated before, I have cut several of my positions in the agriculture stocks, but have not eliminated them completely. I do this only as a way to spread my risk. There could still be a lot of money left to make in agriculture, and if so, I will capture part of the gains as I slowly sell out of them. Conversely, if the agriculture stocks take a dive tomorrow, I have booked some profits today with no worries. During this time of selling the agriculture positions, I am also increasing my stake in SMN. For a short period of time, I will cross into a zone where my money is perfectly balanced between the two, almost canceling any movement up or down. Gradually, though, my stake in SMN will increase reflecting my own macro-economic view that commodities will go down as the US enters recession. As the US goes into recession, SMN will go up as the commodities come down.

SMN is designed to inversely double the Dow Jones US Basic Materials Index. This index contains a lot of our favorites in the SLO, with major steel, coal, agriculture, chemical, and mining companies as components. (For a component list, go to www.djindexes.com) It's no wonder that basic materials ETFs have been soaring since the majority of the companies in the index have prospered greatly in the past few years. This is the reason that SMN is so dangerous. If commodities continue up, I will be losing doubly. Before today, my original stake in SMN was down over 17% . . . that's a nice paper loss, embarrassing to the most stoic of players. I bought it at the wrong time, and only bought it one time, without averaging in. This time I am playing it safe. I took a 14k stake today, and I will be taking at least 2 more similar stakes in the next 2 months. The only reason I may hold off on taking a bigger position will be if commodities crash rather than taking a slow ride down. Again, it may hurt me in the short term, or even for the contest, but I believe my strategy is sound. SMN is trading just a tad above its 52 week low, and at $34 a share, its way off of its January 22nd close which was around $53. Any chinks in the commodities armor can become bigger problems in another mini-panic sell off. If that happens, those that positioned themselves on the short side will clean up.

Where do you stand?

I've made my decision. Anyone want to raise me one?

---Jonathan

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Taking Jubak Behind the Woodshed

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I couldn't believe what I read this morning when I checked in on the MSN money page and read Jubak's article entitled, "Where's the bailout for Main Street?" I feel like I am being a malcontent here, since I just railed on Jon Markman recently, and now I turn my aim toward Jim Jubak, someone who I respect (though I have never met him) and make his articles required reading.

Here's a shout to Jubak, Markman, and anyone else who speaks up for "Joe six pack" or "Joe Investor"--- none of you speak for me, and I am tired of your assumptions on my social class. The "Main Street" you speak of is the one I live on, and I don't need your condescension.

I am Joe Investor, and you are not, so let me tell you about things here in the trenches. My wife and I make less than 75k combined, and we are doing just fine thanks to a little hard work and pre-planning. We are putting away over 35% of our income toward a fund that will help us put a down payment on a house in about a year, probably a house that someone else got overextended on due to their own irresponsibility. We have our goals, and we are reaching them a little bit at a time, one day at a time. Not everyone on Main Street blows their money on cigarettes, beer, satellite t.v. , and lottery tickets. Some do, but assuming we are all miserable is plain wrong, and I doubt I am in a small minority.

Jubak writes, "So if you think your paycheck isn't keeping up with the price of milk, bread, medicine, and gasoline, you're absolutely right. And for many American families, this isn't a recent phenomenon. The median hourly real wage has been falling for the last three and a half years. So a family in the middle of the U.S. economic pyramid knows there's a recession going on; for some the recession has been going on for three years."

When I read tripe like that, it makes me wonder if someone as smart as Jubak thinks that lowly of regular folks, or if its just an article churned out to play to some readers emotions who have it good, but feel bad for those that don't. I guess I should check my freedom in at the door and Jubak can be my dad. "Woe is me", I should say. I give up . . . let's just surrender the country to the financial elite so we regular folks don't send it to Hades in a hand basket. Paychecks not keeping up with the price of milk and bread? My wife and I compare prices each and every time we go to the grocery store. We pre-plan meals so we don't waste food. We only buy cereal when it is on sale, and if it isn't, we eat oats, which is a heck of a lot cheaper and most of the time, more healthy. Repeat that on many other food purchases. I can't be the only person that does this type of stuff!

Gasoline is too expensive? Please. We should all be writing letters to the CEOs of Exxon Mobil (XOM), Royal Dutch Shell (RDSA), BP, and the rest of them with long letters of thanks. Thank you for providing me with a product that allows me drive wherever I want for holidays, birthdays, to work, or to the mall. It sure beats hitching up the horse. I used to have a boss that whined about the price of gasoline while he and his wife purposefully bought a house out in the countryside and commuted 40 plus minutes each way to work and back. Did you catch that? There was a choice involved there! Since when did the free choice of purchasing a product become an entitlement to get it for whatever price I think is right? Now that I am on my soapbox about the gasoline price whiners, let me tell you what I did about the price of gas.

Over two years ago, before I got married, my soon to be wife and I sat down and did a cost benefit analysis of our future living and working situation. We purposefully chose to move closer to work, so that our commutes would be shorter, not only to save on gasoline, but to also give us more free time. We crunched all the numbers, (rent, insurance, gas, wear and tear on vehicles, etc) and decided to make the move based on this analysis. I now live less than 2 miles from work and she is less than 4 miles from work. I not only gained an extra 40-50 minutes of time every day, but I also haven't looked at the price of gas in months. I have no idea what gasoline costs here in central Ohio. I fill up maybe once a month. A choice was made, and it is paying dividends. And by the way the abridged version of the story above wasn't easy. Sacrifices were made. Here's some things I didn't do:

1. Whine about the oil companies
2. Demand my politicians "do something about it"
3. Demand a windfall profits tax on those associated with the oil business.

All of the things listed above aren't proactive. You need to get off your butt and do something about your own situation. People do it all the time and will continue to do it. We aren't all helpless, are we? Can't move closer to your work? Get a car that gets better gas mileage. Can't do that? Forego one night of going out to dinner, and put that money in the tank. Lose the Starbucks coffee (SBUX) every morning. Get rid of that Tim Horton's bagel. Come on, people. In the end, it boils down to the fact that no one wants to make even one slight modification of their consumer behavior to accommodate for price fluctuations. I drive a car that is paid for, and my next car purchase is already planned, months in advance. I seriously hope I am not the only one on Main Street that pre-plans purchases. That big fat economic stimulus check? Yep, a plan is already in place, and blowing it all isn't the plan. Listening to Jubak, I must be the only one on Main Street doing this. I guess that although I make several consumer choices, it must be someone else's fault I have no cash in my pocket. It's someone else's fault all the time, every time.

By the way . . . even if an oil company gets hammered with a big windfall profits tax, how does that help you? You are still paying market price! Here's an All Points Bulletin from Main Street: It'll be a long wait if you are always looking for someone else to help you.

Jubak says, "The last time we had a recession, the rather mild one that ushered in the current decade, Congress acted to extend unemployment benefits beyond the basic 26 weeks in March 2002. By that point in the recession, 1.3 million workers had exhausted their basic benefits. This time around, in the frantic effort to get any kind of stimulus package past both parties in Congress and past the White House, Congress refused to extend unemployment benefits for workers who had exhausted their basic benefits. Out of work for 27 weeks? Tough luck, we're cutting you off."

Guess what, Jim my man? I have been out of work before, and there's nothing like tough luck to put some fire under someone's rump. Doing odd jobs for months is tough, but it is one heck of a motivator. Going through pain teaches us lessons. Going through pain teaches us to prepare. Going through pain in the tough times helps us flourish in the good times. This business of always blaming someone else while our hands are extended looking to take a freebie is the problem. Time to buck up, folks. Those of us on Main Street can deal with economic problems, it just takes more economic nudging for some than others. Hand-outs don't help us, they hurt. The sooner we all realize that the better.

I have 40 or so years to prepare for retirement, but if I am to listen to any of about 12 talking heads, I may as well throw in the towel now. There's nothing I can do, 40 years isn't enough time, and it'll be someone else's fault I am not ready for retirement. I am destined to be social security poor, right? I say "social security poor" because if I get to retirement age and social security is all I have, I will be in poverty, plain and simple. (Despite this sad reality of Social Security, there's plenty of people that want to preserve this system "as is", continuing the cycle. This dumbfounds me). I guess I need to prepare today for blaming someone tomorrow.

Sports stars juice up, and it isn't their fault because of the pressure of being a top athlete.

Homeowners are losing their homes, but it isn't their fault because someone didn't tell them to read the contract, ask questions, or even think about preparing for a worst-case scenario. It's someone else's fault.

A kid commits a crime, and it's society's fault, the school's fault, or the neighborhood's fault.

A man is morbidly obese, and it's Mcdonald's fault (MCD), Burger King's fault (BKC), or Wendy's fault (WEN) for making him fat. This same man has high cholesterol, and Lipitor costs a lot. That's Pfizer's fault (PFE). Hopefully the class action lawsuit he is part of against the tobacco companies can pay for the drugs. After all, it's Altria's fault (MO) that he can't breathe after smoking for decades.

My all time favorite blame game was a subject I covered in a blog last September in an entry called "Abolishment of the Uptick Rule to Blame?" I bet you didn't know it, but the reason many company's stock prices have been in the toilet is because of those charlatans called short sellers. Since the uptick rule was abolished, short sellers have been getting a large chunk of blame. I was in the gym the other day watching Cramer on Mad Money spewing forth more uptick rule abolishment anger, and in today's Wall Street Journal, there is an article by Gregory Zuckerman laying out the case for and against the elimination of the uptick rule. Don't blame boneheaded moves by management. Don't blame the normal cycle of markets. It's someone else's fault, and that someone else is a short seller. We get constant droning on and on about how we need to view the market long term and invest long term, but at the same time these same people complain about volatility and downturns of the market.

Want to read some common sense on short selling? Go read Vad Yazvinski's "Why I think short selling makes sense", a blog post from February. While you are at it, go read his bio. Foreigners that come to this country are successful because they work hard and don't make excuses. Vad is an example of that. Immigrants aren't making excuses, they are taking the bull by the horns and making the sky the limit. They aren't used to having every type of economic safety net known to man to catch them when they fall. Home grown Americans need to learn that work ethic. My generation, the Generation X-ers, need to get our lazy duffs in gear, and you boomers need to teach us some tough lessons, not provide hand outs. I respect my elders, but you guys need to stop being soft. (I am now stepping off my soapbox).

The market tore a chunk out of me today, ripping out a good 2% plus piece of meat from my portfolio, and my cash has been deployed to beef up my short ETF positions. This rally could actually have some teeth this time, so I am glad the cash is there to buy when necessary. I have followed FXP all the way down from my last sell at $118.00, and I have no worries.

Actually, shouldn't I be finding someone to blame for my portfolio problems?

----Jonathan

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Common Sense Econ: A Real Life Lesson

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There have been several players posting blogs lamenting Bear Stearns, lamenting the dollar going down the tubes, lamenting commodity prices, and worried that we are headed into a depression. Take a collective deep breath, folks. It's not that bad. You have choices here.

Let me give you a real life example of economics in action.

Back in January of 1997, I was a mere PFC in the United States Marine Corps doing training at Camp Geiger, North Carolina. My unit's squad leaders, mostly sergeants, told us we were going to the field for 2 weeks with no access to the normal base luxuries, including the Post Exchange. (The PX is where you buy gear, like a mini Wal-Mart). We went to the field, and it became my first real life lesson of how markets work.

How so?

With no access to the Post Exchange, the normal items that troops take for granted ran in short supply, and with it, high demand (desire) to obtain those supplies. The supply I speak of was cigarettes. Most guys didn't prepare adequately for 2 weeks in the field, but the smokers were especially unprepared. Some guys spotted an opportunity. Armed with 2 cartons of cigarettes, individual Marines went about their daily training, smoking their normal lot and awaiting the time to capitalize on those that were unprepared. As the days wore on, those that only brought a few packs out with them ran out. At the first sign of trouble, they bummed cigarettes, but when the overall supply of cigarettes dwindled, no one could "bum a cig" due to the short supply. The smokers got desperate. They started trading for cigarettes and paying for them with whatever cash they brought out to the field with them. Bid and ask prices for cigarettes were the norm, increasing as the days wore on. By the last 2 days of training, I watched several Marines paying $5 for one cigarette or trading 3 MREs (Meals Ready-to-Eat) for one cig. Being hungry for several hours or trading a piece of green paper with Abe Lincoln on the front was worth one cigarette in that situation, at that point in time. It was the free market working as it has always worked. The smokers that were the most prepared came out of 2 weeks in the bush with a pocket full of cash and a smile on their faces. They had the foresight and the smarts to spot an opportunity.

How does this compare to the current market conditions we are facing? Some people have prepared and some haven't. Those that haven't are going to get eaten alive and those that have prepared are going to launch themselves into a much higher tax bracket. People will pay only what they deem an item is worth, plain and simple. JP and Bear did the best they could with the information available, and $2.00 per share was the result, like it or not, take it or leave it. No one would touch Bear with a 100-foot pole, let alone a 10-foot pole. JP did with Other People's Money.

More deals like this are on the horizon. Citi has been crushed in the past 9 months, and someone could buy a share of it and make more money then they know what to do with. It will go beyond Financials and Real Estate. It might not be now or 6 months from now, but it will happen. Free markets work, even if they work in a way we dislike. Sure, people will throw around phrases like "price gouging", "monopoly", or "bear raider", but it is the seller's and buyer's choice, and we are making it.

You have options in this market. Buy it long or sell it short. It is that simple. Where is the bottom? Tell me and we can be multi-millionaires together. Are we going into depression? Put your money where your mouth is and sell the market short big time. Is the bottom going to be when housing prices are stabilizing? Well, sell short and then go long.

There are over 6.7 billion of us in this world that are affecting the markets. They go up, and they go down. I have this market sold short, but honestly, all of this doom and gloom about the markets is making me want to backhand a trader or two. You aren't hamstrung . . . you have choices! Make them, and get moving. We are at the beginning of a bear market, and bear markets are part of the normal path of markets. Let's worry, but let's not panic.

----Jonathan

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