jaudio shorts

In Defense of Ben and Other Musings

Rating: 2.67 not yet rated(3 votes)    Vote:

You are logged in as | Logout

Question: Name the last time someone said anything good about Ben Bernanke?

Find yourself scratching your head? No problem, you are in good company. Between the jabs of Helicopter Ben, the Bernanke put, and comments about being the evil spawn of Arthur F. Burns, there really isn't anything good to say about him. Stagflation anyone? It's all Ben's fault, right?

I've had my own complaints and rumblings about Mr. Bernanke, but I think I may have jumped the gun and will offer a few opinions as to why Mr. Bernanke and the rest of the FED members are not a bunch of oxygen deprived cretins.

First of all, it's easy to criticize the guy at the top when things aren't going well. Keeping rates as low as they were for as long as they were can be laid at the feet of Mr. Greenspan, with Mr. Bernanke being an unindicted, co-conspirator at best. The "mess" we are in right now isn't a result of one guy doing one thing at one time. It's a snowball that has steadily grown larger for several years.

1. Do we blame the FED entirely for keeping rates too low for too long?

2. Do we blame lenders that threw money at people (tricked?) that had no way of
making their house payments, with "liar loans" and the like?

3. Do we blame homeowners who didn't have the credit, the income, or the
discipline to prepare for the day their ARM would re-set?

4. Do we blame investors for quickly demanding and paying top dollar for anything
related to real estate, including sub-prime loans?

5. Do we blame the government for wanting everyone to be a homeowner, even those
who shouldn't be? (Should everyone be a homeowner?)

6. Do we blame everyone for thinking that property only goes up, up, up? (house of
cards, anyone?)

Feel free to add a few more to the blame list. What's done is done, and to quote a favorite movie of mine, "It's a big $#@% sandwich, and we're all gonna have to take a bite". Those comrades in arms will know which movie I am referring to.

And biting we are. Those non-speculators and prime mortgage people are suffering the fallout despite their acts of being responsible. Why should people suffer for being responsible? Give that one to the theologians when talking about the problem of evil.

Which brings us full circle, back to the man in question, Ben Bernanke. Last August when the credit engine seized, should he and the FED just kept the status quo? I thought so at the time, but the more carnage about the credit market that gets revealed, the more I am thinking the FED was right. The rate cuts will end up making the recession less severe, although painful like any recession. Since the rate cuts take several months to work their way into the economy, we probably won't be seeing any effects until mid summer, so until then we should brace for more bad news. Hopefully the rate cuts will be finished by the next FED meeting, since the next ride on this coaster will be inflation fighting with rate hikes. We may have over steered right and will soon be over steering left. What's a FED chairman to do? Housing will finally reach equilibrium, but when? Prices will continue to drop until the vultures come in and clean up the mess. The vultures are good for us. They'll get rid of this supply glut of houses and property a lot faster than a Congress dangling carrots in front of the irresponsible buyers who bear a portion of the blame. We will take the hit, lick our wounds, and get back to business. In other words, the FED had no other choice last September, and they saw the seriousness of the situation better than most. I have disagreed and criticized the FED over the past few months, but I was wrong. I don't like inflation, and I don't like the situation the economy is in, but the markets will work it all out. I believe in free markets, and I believe the free market will correct itself if we can just stay out of the way ($160 billion anyone?). I'll revisit this opinion in a few months to do further Monday morning quarterbacking.

As far as my portfolio is concerned, it has taken a bit of a hit this week, mostly because of my position in FXP, EWV, EEV, and EFU; all of which are Ultra short ETFs for China, Japan, emerging markets, and Europe/Asia Pacific. I have taken profits in these over time in small chunks, but the pullback made me suffer a little more than my liking. FXP hit two of my limit prices to buy, so I am back up to over 9% of my portfolio shorting China. My original intention was to trim my position in FXP down to about $30k, but the price was right to buy and buy I did. EWV, EEV, and EFU positions remain the same since I already have 100k on the table shorting China.

Along with shorting the overseas markets, I have $40k in foreign currency ETFs and a bearish US dollar ETF which all do well with the fall of the US dollar. I have been using all of the currency ETFs as a short term place to park extra cash and remain in compliance. They have yielded a return of a little over 3% so far, a mere pittance for the leaders, but satisfactory for me until we get later in the game.

The bond ETFs in my portfolio have been rather boring, returning - .5% on the 100k that I have parked there. Again, I am not too worried since the bonds are for diversification and can be emergency money if the time comes.

I have been satisfied with the performance of GLD, streetTRACKS Gold Shares and SDY, the dividend aristocrats ETF. Both have been slow and steady moving upward, handling the bumps in the markets just fine.

Finally, my short squeeze picks are performing average to below average, only because they haven't moved too much up or down. I have sold two positions, WGO and BHS for a 10% plus gain. Since I didn't have a lot of money on the line, it didn't translate into hefty profits, but I'll take a couple 10% winners from a crew of beat up companies any day. Most of them have been swinging up and down 5% from my initial buy in, so not a lot of excitement yet. I have added two more short squeeze picks to the portfolio, NCT and IMH. Until I cash out a few more, it looks like my short squeeze picks are final.

As a sharp contrast to SLO round 1 where I had minimal trades (only about 50 for the entire 6 months), I have been trading almost every day in SLO 2. However, every trader (traitor?) needs a break, so tomorrow will be no trades other than automatic limit orders. I am headed off to Seven Springs, Pa to snowboard the slopes and recharge for next week. Sayonara.

---Jonathan