jaudio shorts

Running out of food? You're smoking POT, MON

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Jon Markman, in his article Could We Really Run Out of Food, lays out a case for the possibility of a global food shortage due to increased demand, possible crop failures, the feeding of animals, weather in Australia, La Nina, and the production of ethanol. I really like reading Jon Markman, and I really hate to disagree with him, but on this one I think he is dead wrong.

Markman says, "The very idea that the modern world could run out of food seems ludicrous". I got news for you, Jon. It is ludicrous, barring thermonuclear war or the abolition of democracy and capitalism around the world. I guess those that espouse ideas from The Population Bomb by Paul R. Ehrlich probably agree that it is all misery from here on out, but I beg to differ.

Food shortages and famines are caused by political thugs, not high demand.

When is the last time a democracy experienced famine? I'm really not sure . . . the SLO bloggers will need to help me out with that one. India pre-1967? That's the great thing about free markets. When the price goes up, more people strive to get in the game to get a piece of the action. Prices will go up, and people will pay more for food, but there won't be mass starvation. The simple truth is that if doomsday ever did come, the developed world would be the last to starve.

Markman also says, "Unlike energy, you can't drill deeper in the ocean or under Arctic tundra for more food."

Though this is a true statement, he is missing a giant piece of information: higher yields from the same amount of land. There is a reason I said, "You're smoking POT, MON". POT and MON are just two of a great number of companies that create products so farmers can get higher yields from their crops. Why have both companies been on fire lately? They are filling the global demand to meet higher yields. How is it that US farmers "feed the world"? That 17 year streak of no major crop failures is only part of the reason. As an aside, how is it that the US has been able to have a 17 year streak in the first place? It wouldn't be because agriculture companies crank out products that make us grow, protect, and harvest better than everyone else, is it? God provides the sunshine and rain, but he also provides us with the smarts to make the most out of every acre. That is true from the CEO of ADM down to the 10 year old farmer's son waking up before dawn. Again, barring thermonuclear war, we are going to be able to eat. High world demand is the least of our worries.

Another bit of comedy within Markman's article is when BMO Financial Group strategist Don Coxe claims that all ethanol plants will be shut down when doomsday arrives. Earth to Don Coxe; free markets respond in real time, buddy. Ethanol would either die a slow death, or farmers would figure out how to meet the demand so we could eat and use ethanol both. Oh yeah, I forgot . . . we still can drill for oil (or get it out of sand, or get it out of shale . . .) and refine it into gasoline in order to drive. Amazing how that works!

The only part of the article that I agree with is when he stumps for Ag companies at the end. Commentators and bloggers have talked about all of the companies and ETFs at length. I just wish he could have spared us the doom and gloom leading up to the final pitch. I love ya, Jon, but you struck out on this one.

--Jonathan

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It's not retreating, it's attacking in another direction--Combat Investing

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For any active or former military SLO players out there, I would like to recall a couple of my favorite quotes from USMC lore:

"Retreat, hell! We're attacking in a different direction!"
--General O.P. Smith, Chosin Reservoir, Korea, 1950, when asked it his "fighting withdrawal" constituted a retreat.

"We're entirely surrounded, those poor bastards. They've got us right where we want 'em. We can shoot in every direction now." -----General Chesty Puller, Chosin Reservoir, Korea, 1950, when told that 10 Chinese divisions had his men completely surrounded.

Investing in this market has been very much like fighting a war. Jmcdowell of the Visually Compelling TA portfolio has been educating us on the game of chess and how it compares to the market. I agree with Mcdowell, and raise him one. Making money in this market is like fighting a war. We gain ground only to lose it the day after. We lose ground and fight all day to win it back. There are a lot of casualties, and for those at the top of the leader board, half can be chalked up to luck, myself included. How is investing like fighting a war?

In a war, diversification in a key ingredient to winning.

Send the Army, Navy, Air Force, or Marines? Hit the target with planes, tanks, artillery, or infantry? Dumb bomb, smart bomb, high explosive, or white phosphorous? We must have a diverse amount of weapons at our disposal to achieve the objective and to absorb the hits as they come. Sure, we can stack our portfolios totally with Ultra Short ETFs (No offense to the players doing it-I am a brother), but when the tide turns it turns big. Diversification doesn't mean a portfolio won't go down in value. Rather, it allows you to absorb the hits until the conditions swing the other way.

In a war, Intelligence = the edge.

Some people view "military intelligence" as an oxymoron. Intel is still trying to wipe the mud off of its face when it came to the realization that there were no large stockpiles of new NBC weapons in Iraq. The "slam dunk" was blocked by the rim. However, the Iraq situation shows the power of good and bad Intel. You can never have too much information. Knowing the right information at the right times will allow an army to properly deploy forces to meet the objective. Discerning the bad Intel from the good Intel is essential, since there is a lot of bogus info to throw you off. In investing, we also must have access to the right information, and we need to be able to keep from being sucked into the hot stocks at the wrong time. Bad Intel will lose battles, and bad Intel will lose money.

In a war, the situation is fluid, requiring constant adaptation.

There is a saying that once bullets start flying downrange, all plans go to hell. That isn't totally true, but the original battle plan goes through constant adaptation in order to achieve mission accomplishment. It is impossible to plan for everything that can go wrong. What happens if there is a communication breakdown? Equipment failure? No water, no food, no bullets, the LT got shot, the chopper went down . . . the list is endless. Adapt and overcome is the name of the game. Investing is a fluid situation, with rallies turning into retreats, turning into rallies. Commodities are hot today, cold tomorrow. Have a plan, and plan for contingencies. When there is no plan for the contingency, improvise. Investors make money when the markets go up, and investors make money when the markets go down. It isn't retreating . . . it's attacking in a different direction.

In a war, reinforcements can turn the tide.

In the battle of Gettysburg, the Union Army could have collapsed and been routed if fresh men and ammunition not arrived to save the day. Having enough beans, bullets, and band-aids is critical, especially when the assault is on. In investing, this means having enough cash on hand to take advantage of buying opportunities. In SLO round 1, I was fully invested on the short side for the majority of the competition. Several buying opportunities arose, but with no cash on hand, I could either let it pass me by or I could lock in losses of other holdings to obtain the funds. Most of the time I watched. So far in SLO round 2, I have kept anywhere from 50k-100k in cash with at least another 100k plus in currency and bond ETFs, ready to be cashed out to fund buying opportunities. So far, the cash position has allowed me to take advantage of several swings on both the long side and the short side. The currency and bond ETFs are extra "reinforcements" awaiting deployment and making a small percentage while they wait.
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I have finally reached a point in my portfolio where I am satisfied with all of my holdings and the size of each position. There are a few holdings I am not happy with, but overall I have been able to stay toward the top with long stocks, long ETFs, and short ETFs. Technically, I am mostly short hedging long. My short squeeze picks have been average, with a few moving double digits in a single day, but only getting me just over the break even point. Gatehouse Media (GHS) popped over 19% today, and Crystal River (CRZ) gained over 20% over two days. Both of these were short squeeze picks that popped, but I have yet to lock in a profit. Timing is everything, and missing the buying point by even one day has its consequences.

My darling of the portfolio remains FXP, the Ultra Short China ETF. I have been buying and selling small positions in FXP since competition started, and if you like volatility, sink your teeth into FXP. During the market rally on Tuesday, FXP dropped over 20%. That's right, a 20% drop might as well qualify as a crash. It crossed one of my limit buy prices and away I went. I just sold that small position today, locking in a 10% gain. FXP is my friend right now, but can quickly stab me in the back as I play with fire. With my position around 50k, I am still uneasy, but not stressed. When it finally crosses the $110 mark, I'll trim down to a safe 30k, but until then I will be buying and selling at specific points in the range between $80 and $100.

I want to take the time to tip my hat to the illustrious KB, the most dangerous player in the SLO, Uncle John for his iambic pentameter on demand, Jmcdowell for his chess, and the Family Man, Ric Bottorf, and big Don Ferk for their constant contributions. Though there are others I have missed, you are not forgotten. The market is out there. Lock and load men, it's killin time.

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Two Buck Chuck? How about Two Buck Bear?

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The title of this blog says it all, folks. I can't wait for earnings season. Keep your seat belts buckled and tray tables up. We are in for some turbulence.

----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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