Get a safe, hold cash, and wait for the buying opportunity.

[Sapiens]

Get a safe, hold cash, and wait for the buying opportunity.

OK people, many are asking what’s in store for the following week: August 13, 2007 to August 17, 2007.

There will be lots of turbulence and volatile action in the markets, the only unknown here is what the Fed chooses to do, all else is clear: Deflation.

If you are smart, you have cashed all your equities and real properties and are holding physical cash waiting for the buying opportunity. If not, you will get burned. (If you hold large amounts of cash, you better be using some type of secure warehousing like Brink’s for your peace of mind.)


If you are lucky, the Fed will choose to keep injecting liquidity for the next week, but I doubt they will keep going much longer than that. In my opinion this weekend was used to choose who will be allowed to fail, and let me tell you, it will not be pretty. The majority of people’s retirements funds will be technically wiped out. So if you have not cashed out, this are the last moments you have to do so.

Once you have cashed out, be patient! Soon you will be able to gorge on many assets that were only a gleam in you eye.

Life is good people, and here you will have the buying opportunity of a lifetime!

Cheers and my best to you,

-Sapiens

DISCLAIMER:

Nothing on this post is intended or should be construed as investment advice. It is intended to be used for informational and entertainment purposes only. By using this board you agree that you understand the risks of trading, and are solely responsible for your own investment and trading decisions.

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Sapiens -

You are correct - cash may well be a very good thing to have now, to buy into a lot of discounted assets in the next month or two. But what will you choose to buy with that big cash hoard if you commit the funds to a 5year term for the investment?

______________

Some cash-producing North American equities?

Some international equities?

Jim Rogers commodity index?

Some short or long bonds?

Some TIPS?

Some Zero Coupon bonds?

Some Yen or Swissies to hold for liquidity and appreciation for 3+ years?

Some commodity stocks?

Some rare antiques or collectibles?

______________

I' like to know what class of assets you think will be the best place to park the cash you raised, assuming you make an allocation and choose to keep it there for the next three to five years? Pick just one, to make a clear point as to what kind of market you see ahead.

None of the above, or one of the above? Please Sapiens, don't reply with one of your "delphic oracle" responses - a straightforward easy to read response would be great, and it would offer actionable advice to many people here.

I still haven't figured out your "Japan demographic conundrum"! :cool:

[Mega]

Re: Get a safe, hold cash, and wait for the buying opportunity.

ER how about those from Liverpool who have cash in the (British) Bank?
Mega

[Spartacus]

Re: Get a safe, hold cash, and wait for the buying opportunity.

try through your European connections to get that Spanish, British and Italian gold at a discount.

; )

On a more serious note, Prechter thinks the safest investment in the world are the bonds from the Swiss Cantonals (hope I have that right). You're probably better situated than us to get those.

ER how about those from Liverpool who have cash in the (British) Bank?
Mega

[Guest]

Buying opportunity in what?

Sapiens -

Very respectfully : On occasion you will offer a broad opinion, but then when readers ask you to be more specific you'll either hang back and leave them wondering where your thoughts were leading precisely, or you'll offer a sixty page reference document which readers must read from start to finish to glean a summary of what you meant. That's why I think of you as the "Delphic Oracle" here at ITulip. I mean it also as a compliment as you post very substantial news and views.

So as it's looking like some major crap is blowing around this week and next, how about a follow up post where you commit yourself to one of the above investment categories? Make a general direction market call, otherwise you commit yourself to no forecast and we must assume you recommend going to cash and staying there for years due to having no particular sense of where the markets will go in actionable terms.

You seem a proponent of a massive deflation now taking hold, spreading out of Japan? Are you going to be explicit and come out recommending people place a big bet on zero coupon bonds right now? They could make a killing on the bet, but not if they merely sit on the fence.

For whatever he's worth to people in this community - and I admit at times he does get a little maverick - here is Mr. Sinclair putting all his chips on the table with a committed view. He, for one, seems willing to commit to a prognosis ...

The Big Kahuna: OTC Derivatives Begin Full Blown Meltdown [IMG]file:///C:/Program Files/Common Files/Microsoft Shared/Stationery/spacer.gif[/IMG] Jim Sinclair Posted On: Saturday, August 11, 2007, 6:03:00 PM EST _________ This is the BIG KAHUNA!!! World Central Banks are admitting to a $300 billion liquidity injection, so it must be much higher. This type of injection over what has now been three days is so unprecedented that it is not because a few hedge funds have gone broke. This is a full blown meltdown in OTC derivatives. This is certain because of the worldwide liquidity injection by almost every major and some minor nations. That is also unprecedented. This injection of liquidity will reverberate around the globe for years to come as inflationary and dollar damaging beyond your wildest imagination. This is so big that there have to be many financial institutions in big trouble. _________ Dear Jim, You said: “History is being made yesterday and today. It may well not be over even in this time span. The actions of Thursday and Friday are greater even than the Bernanke Helicopter Drop in the two day time period. This event will reverberate through the world financial market for years to come. This is only an indication of what will happen as all this economic sin, instant gratification, profit at any cost economy begins to unwind in the form of the Over The Counter Derivative implosion. Be careful here.” Does that mean we could see a substantial (but temporary) drop in the price of gold or more of a Thursday-Friday yo-yo type of a market? Thanks for all of your hard work! CIGA Mike Dear Mike, The dollar rules gold and the Formula rules the dollar. What I am warning you about is trading the stock market until the dust settles. I am not in any way concerned about gold as the derivative meltdown is here and it is far from dollar positive. Regards, Jim _________

Central banks act to head off a global credit crisis

( Glenn Somerville and David Milliken, Reuters )

Published: Friday, August 10, 2007


WASHINGTON/FRANKFURT (Reuters) - Central banks around the globe pumped billions of dollars into banking systems on Friday in a concerted effort to beat back a widening credit crisis, and they pledged to do more if needed.

In all, central banks in Europe, Asia and North America have pumped out more than $300 billion over 48 hours in an effort to keep money flowing through the arteries of the global financial system, hoping to prevent a credit market seizure that could imperil economies.

In a rare statement of reassurance that underlined the seriousness with which it views the current bout of market stress, the U.S. Federal Reserve said it would provide cash as needed to ensure markets functioned smoothly. The statement was the first of its kind since September 11, 2001, when terror attacks brought the U.S. financial system to a virtual halt.

"Ben Bernanke must feel like the captain of the Titanic," said Sherry Cooper, chief economist at BMO Capital Markets in Toronto, referring to the Fed chairman. "He knows the ship has hit an iceberg but, through the dark and fog, can't see how bad the damage is."

The Fed conducted three separate operations on Friday, pumping a total of $38 billion into the banking system, the largest amount for any single day since September 19, 2001.

Markets responded positively. The Dow Jones industrial average <.DJI> ended down 31.14 points at 13,239.54, but in early trade had been off more than 200 points. The Nasdaq Composite Index <.IXIC> lost 11.60 points -- less than one-half of 1 percent -- to close at 2,544.89.

The U.S. central bank was not alone in its market-bolstering exercise.
The European Central Bank injected 61.05 billion euros ($83.61 billion), less than the record-setting 94.8 billion euros ($130.6 billion) it provided on Thursday but enough to steady panicky euro-zone credit markets.

The Bank of Japan, the Bank of Canada, the Swiss National Bank and the Reserve Bank of Australia also provided funds.

The White House weighed in to say that the Bush administration's top economic officials were on the case and that the economy remained sound notwithstanding market gyrations.

"I can assure you that there are many of the president's advisers who are keeping a very close eye on all of the market activity and making sure that policies are put in place to keep our economy strong and growing," White House spokeswoman Dana Perino said.

EUROPE ON WATCH

Markets have been rocked for weeks by news of problems in banks and funds exposed to risky investments in U.S. mortgage and asset-backed markets. That triggered fears that the cheap credit that has fueled global growth might dry up.

The tremors that jolted global markets began on Thursday in France, when BNP Paribas closed three funds, sending waves of fear through European credit markets that deepening losses tied to rising U.S. mortgage market defaults could undermine the soundness of European investment firms.


Glenn Somerville and David Milliken, Reuters - PAGE TWO

Published: Friday, August 10, 2007

Signs that euro-zone money markets were freezing up sparked the ECB's large-scale action on Thursday.

ECB President Jean-Claude Trichet told a French newspaper the central bank will "continue to pay close attention to market developments in the coming period" and act as needed, but he stressed that price stability remained vital for growth.

A sense of panic led financial markets to rethink where interest-rate policy in the world's major economies may be heading. Investors slashed bets on euro-zone and Japanese rate hikes and came to see a one-in-three chance of an emergency cut in borrowing costs by the Fed, while fully pricing in a reduction at the Fed's next scheduled meeting on September 18.

While the ECB acted aggressively on Thursday to begin stemming what it saw as a dangerous tide, the Fed provided only $24 billion in liquidity on that day.
Robert Eisenbeis, who retired as head of research at the Atlanta Federal Reserve Bank in January, said the U.S. central bank had taken the necessary steps to calm markets.

"So far, I think they have done fine and where mistakes were made was in Europe. They overreacted and the ECB stepped in before necessary," Eisenbeis said.

Whether market volatility was worse in Europe or not, the source of much of it had made-in-America written on it as investors worldwide scrambled to assess the fallout from the once high-flying U.S. housing sector's sharp downturn.

ORDER IN U.S. MARKETS

The Fed's efforts appeared successful at wrestling overnight U.S. rates down closer to its 5.25 percent target.

"The Federal Reserve will provide reserves as necessary through open market operations to promote trading in the federal funds market at rates close to the Federal Open Market Committee's target," the Fed said, signaling a willingness to do whatever necessary to keep markets from seizing up.

Fed policy-makers had shown limited worry about credit market conditions on Tuesday as they voted to hold rates steady and warned anew about inflation risks.

Many analysts continued to believe the Fed would be able to ride out the storm.

"The world credit crisis is big enough now that you will see continued overnight operations, providing more liquidity for a while, but I don't think it means a rate cut here," said James Swanson, chief investment officer at Boston-based MFS Investment Management.

The Fed will resist being "backed into a policy change just because the markets are going through some turmoil," he added.

While the central banks' concerted actions in injecting money appeared to be having some calming effect, no one thought the credit market crisis was near played out.

More subprime problems are likely to surface in coming weeks, said Moe Ibrahim, a fund manager with The Asia Debt Fund in Singapore, which manages about $365 million in assets.

"There's a variety of scenarios you can envision, all the way from it being a relatively contained phenomenon to something which has much broader implications that cause the world to collapse like a deck of cards," he said.

(Additional reporting by Saeed Azhar and Vidya in Asia, Tamawa Kadoya and Richard Leong in New York, and Alister Bull in Washington.
_________

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

This is what is intended by "long term investing in a gold bull market", "investing without trading" and "keeping the big picture in mind" :

August 10, 2007

Volatility in the Bull Market

by Mary Anne and Pamela Aden

The commodity markets were bubbling this past month. Oil, lead, wheat and the CRB index closed at record highs and tin reached an 18 year high, driven by China's fastest growth since 1994.

Volatility then set in as the subprime woes affected the commodity markets, but China and the world's demand for raw materials is the key to the ongoing bull market rises. Double-digit growth in China and a global economic boom of unprecedented proportions will continue to support the base metals, raw materials and precious metals for years to come.

That's why it's important to stay focused on the big picture. It's easy to get caught up in the volatility and wild swings in the market if you don't have a strategy and plan for the big picture.

Take crude oil as an example. Its "up like a rocket and down like a stick" volatility has been unnerving, but oil is actually strong above $70 and any volatility above this level is par for the course.

The reason oil fell from $78 was due to the concern that a slowing economy would reduce demand. This fall wiped some of the froth from the market, but oil's still strong and the bull market is intact.

Gold is another good example. It hasn't reached a new high for 14 months, yet the major trend is solidly up. And on a big picture basis, the gold price is strong near the 1980 highs and it's wide open to future rises (see Chart). This reinforces that the commodity move is well on its way in the mega rise.

Gold is a safe haven. It rises when there is uncertainty or war in the world, and during inflationary times. Investors, for instance, turned to gold following the huge hedge fund losses at Bear Stearns.

Gold initially fell on concern of a slowing economy, but in reality this would be good for gold. A slowing economy would likely keep the Fed from raising interest rates, thereby weakening the dollar and boosting the appeal of gold.

Demand is also growing not only for investments and jewelry, but also from the central banks who were previous sellers. Countries like Russia, Argentina and South Africa are buying gold for their reserves. In July, Qatar announced it had increased its gold holdings 15 times since last year. China has one of the lowest gold holdings at about 1.1% of total reserves. All they would have to do is increase this by a few percentage points and the gold price would potentially soar.

Keep an eye on... $642, the 65 week moving average. This is the major 6 year bull market uptrend.

Let's see how gold fares now that the slow Summer months are coming to an end. The Fall is normally a good time for gold.

Let's see how gold fares now that the slow Summer months are coming to an end. The Fall is normally a good time for gold.

Mary Anne and Pamela Aden Aden Forecast.com

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

DEFLATION? Fine, then members of this community should place their bets and demonstrate their conviction.

> Oil prices are up 25% in the first 6 months of 2007.
> A gallon of gas costs 40% more this summer than last winter.
> Soybeans cost 27% more.
> Wheat prices are soaring – up 20% already – before the effects of
Midwest drought & Western fires.
> Copper’s up 31%.
> Uranium prices have almost doubled since January.
> The leading index of 23 widely-traded commodities is up 30% year-to-date.

DEFLATION? With a 60% annual increase in the cost of 23 basic raw materials? Yeah, right.

You want to move to cash? You claim cash has strengthened notably against goods in 2007, or is strengthening sigificantly now?

Inflation is persistently chewing on cash's leg -- like a Jehova's Witness pit bull you were weak enough to open the door to. ( My, what big teeth you have... )

[raja]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Get a safe, hold cash, and wait for the buying opportunity.

What's wrong with short-term Treasury bills?
Cheaper than a safe . . . and who better to keep your money with than the folks that make the stuff? They'll just print more when it's time to pay you back.

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Hold that thought - this needs to get posted to an "inflation" thread!!!

[c1ue]

Re: Get a safe, hold cash, and wait for the buying opportunity.

DEFLATION? With a 60% annual increase in the cost of 23 basic raw materials? Yeah, right.

Lukester,

This point actually is one against gold - it generates zero dividends, zero interest, and does not grow over time.

As I've said before, I agree with you that the conditions are right for a gold resurgence, and I'll even add that if we get a redux of 1973-1984, that gold should theoretically go to $3000, but it can be a long hungry time until then.

My direction is more towards using the cash/liquidity you have now to buy into income streams.

It is too expensive in the US - especially coupled with falling dollar potential, overvaluation due to free money, and low growth potential, but that is why it is important to look elsewhere.

That's

[Spartacus]

Re: Get a safe, hold cash, and wait for the buying opportunity.

ah, but that's the real economy inflating, and it's less than 5%. Maybe much less (remember Dr. Hudson's numbers)

What happens when the bigger part of the economy, the lion's share of the economy, the FIRE economy, deflates?

Oil? HAH! compare oil trading volumes to FOREX volumes.

DEFLATION? Fine, then members of this community should place their bets and demonstrate their conviction.

> Oil prices are up 25% in the first 6 months of 2007.
> A gallon of gas costs 40% more this summer than last winter.
> Soybeans cost 27% more.
> Wheat prices are soaring – up 20% already – before the effects of
Midwest drought & Western fires.
> Copper’s up 31%.
> Uranium prices have almost doubled since January.
> The leading index of 23 widely-traded commodities is up 30% year-to-date.

DEFLATION? With a 60% annual increase in the cost of 23 basic raw materials? Yeah, right.

You want to move to cash? You claim cash has strengthened notably against goods in 2007, or is strengthening sigificantly now?

Inflation is persistently chewing on cash's leg -- like a Jehova's Witness pit bull you were weak enough to open the door to. ( My, what big teeth you have... )

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Spartacus -

The FIRE economy is primarily an American construct. It spills over elsewhere, but the overwhelming downside will be for the US. The cultural flaw so many North Americans on this website seem subject to is to not fully appreciate the powerful dynamic of the industrialising world, which is rapidly outstripping the US in aggregate size, and is most emphatically NOT the FIRE economy.

It's a deceptively simple point - a very large component of world growth, which is now large and growing exponentially - is totally omitted from the FIRE equation. Further, it is INCREASINGLY LESS an overwhelmingly America-centric international trade, and that pulling away from the American consumer is accelerating!

I do not believe global growth will be joined at the hip to America's economy for too much longer. China's GDP outstripped Germany only two years after outstripping Great Britain? What's going on exactly with regard to the US as the "locomotive" of world trade?

Americans will be shocked to discover as the US FIRE economy goes down the tubes, that the rest of the world may not join them anywhere near the extent imagined!

There is a critical reason why Jim Rogers is so bullish on commodities. How do you imagine he could remain bullish on commodities for the next fifteen years if the entire industrial world follows the US FIRE economy's demise? Do you think Jim Rogers (or your compatriot Eric Sprott) are ingenues on the potential for deflation?

Does Jim Rogers know something we are not factoring in here? He must estimate the growth prospects of a good number of other nations as remaining considerably more robust than the growth prospects of the US. It's hard to imagine Jim Rogers being naive on the subject of the US's growth prospects, no?

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

C1ue -

There may be some widespread amnesia about nature of the last commodity / inflationary bull cycle.

The fact that gold has not kept up with the soaring price of commodities is precisely the reason it is now significantly undervalued. Lead is up 600% in the past seven years, and Gold, the premier inflation barometer, less than 200%. Uranium 1800%, tin, zinc, copper, oil, and grains are up multiples of the increase in gold. Gold is now cheap compared to the entire CRB.

The take way insight is NOT that gold is a bad investment - inflation is chiseled in stone for the next 10 - 15 years due to resource depletion, exploding global population growth, and 1/3 of the world industrialising! Gold is greatly undervalued compared to all other commodities and compared to exploding monetary aggregates worldwide.

It also happens to be the world's preeminent senior currency. Put two and two together - cheap compared to everything, and the world's most senior currency too.

Gold, among the soaring commodities, is the premier leading indicator - it is pointing at what is to come, not what's occurred. Stephen Leeb pointed this out to me a few years ago in a newsletter - with emphasis, urging readers to understand the subtle distinction - and the simple insight that it was anticipating events to come - pointing ahead - was a very simple, but significant insight.

Stephen Leeb took a Masters in Psychology, a PHD in Psychology, and a Masters in Mathematics concurrently within a four year term at the University of Chicago and gained degrees Summa cum Laude. I think they clocked some kind of record. To call him very bright is an understatement. He's also singularly well grounded in reality.

This is the same (actually very modest) author who wrote a book outrageously called "the Coming Economic Collapse" which is predicated entirely on what he forecasts will slam into the world regarding oil - in the next decade to fifteen years, max. Eric Janszen has a pretty good forecasting record. Actually this guy does too. If you are impressed by academic credentials, perhaps there's something critically important in this point he reiterated about gold's function as a leading indicator that might intrigue you further?

In the 1970's an entire generation had a harsh lesson seared into them, like a red hot branding iron set to their foreheads - witnessing evaporating wealth. The intuition that a rising gold price could in fact be forecasting something, rather than merely reflecting current events, became intuitive to a very broad cross section of society after a decade of that experience.

Today, people have difficulty grasping it's implications. The self evident categories of sound business - e.g. the soundness as a benchmark of a business' cash flow, or compounding dividends in investments, are presumed as the ultimate standard by which all is to be measured. They are viewed as establishing unquestionable superiority over all forms of return on investment and therefore must supercede even gold during inflations because they have an "amortization of principal" and a "yeild" where inert gold does not.

What's overlooked is that for thousands of years Gold has reacted like a scalded cat and rocketed up with startling force at every instance of inflation.

Instead the cash flow / capitalisation rate model as the single benchmark of value is so inculcated in business students 25 years after the last inflation, and 35 years after the last link to gold convertibility was severed - that it cannot be abandoned intellectually even when it is clearly demonstrated that cash flow disintegrates as a parameter for investment in runaway inflation.

Gold does not take off predictably, and yes, it's entirely possible in a decade of critically high inflation you'd be utterly stymied by five, six, or even seven years of false breakouts. But the historic precedent has more data points to draw on than practically every other modern day business axiom (it can draw on 2000+ years of precedents!) - the longer gold's readjustment to year upon year of acumulated, rampant inflation is delayed, the larger the eventual move which occurs.

If inflation is real, and becomes extreme, Gold must proceed to reprice sharply, at some point within the inflationary cycle - with very high predictability.

The whole point in 2007, looking at the extraordinary moves which base metals, grains, oil, coal, and the entire CRB have undergone, is that these CRB components have moved, in what is manifestly a growing inflationary cycle, with far more extent than gold and silver have reacted thus far. The longer Gold and Silver are therefore capped, the more violently they must move if the cap ever gives way.

If the precious metals are manipulated, the upward drift or continuing rise of the CRB itself (and here we must wonder if Jim Rogers has some idea what he's forecasting) must eventually back the manipulators against the wall as shorts get trapped and the disparity between real inflation and the price of the metals yawns ever wider.

This manipulation is a gift to the individual wishing to accumulate these metals at artificially reduced prices - it is not a liability, nor by any means is it a real signal that those metals have no significant value in a high inflation environment!

It's in the economics throughout history - over, and over, and over again.

You look for cash flow, dividends, cap rates, perhaps because your business training taught you this is how to evaluate any and all viable investments. You are puzzled and skeptical that any other parameters could be valid. But investments that kick off cash flow and dividends will be devalued in a high inflation environment, because the cash they kick off becomes a cheap commodity which many governments will be churning out.

I would hesitate on the subject of inflation vs. deflation due to the colossal derivatives buildup - and the global economy may go splat for two, three or four years when the derivatives blow (could even be now), but I know beyond a shadow of a doubt what's coming in energy (demand destruction will only put a small dent in this approaching event) - so I don't even need to look at Central Bank money printing to know the larger theme of the coming bear market will be of the inflationary variety.

The energy crunch coming will in due course (2012 - 2015) be ferocious of itself, and inflationary for nations worldwide. Coupled with the imperative for the dollar to devalue down to zero now practically baked into the US economy, this time the inflation will be one for the history books.

If you found the article I posted about deflationary vs. inflationary bear markets interesting, what conclusions did you draw from it?

According to that article, your cash flow metric does not have nearly the advantage in inflationary bears than it has in deflationary ones.

Did reading that article prompt you to reexamine any of your views?

[Guest]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Poised for a major move ....

[Sapiens]

Re: Get a safe, hold cash, and wait for the buying opportunity.

Lukester,

I am quite busy, but to answer your question in brief: Back to basics my boy, back to basics.

Wait to purchase prime real assets, companies in natural monopolies and those with exclusive gov. licenses. In the interim, companies that cater to human vices will do quite well, as well those that provide for personal security and defense.

Also, keep in your mind that our monetary system is based on monetizing real assets. If you learn how to understand the credit and business cycle, you will always do very well.

Cheers,

-Sapiens