jaudio shorts

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

Comments: View Comments |  Tuesday March 18, 2008