Subprime Insight

Before all my evidence is laid out here the man that called the collapse as he talks about gold on Thrusday:

I missed out on predicting most of the month of March due to my spring break being right in the middle of the month. However, I can finally come to my weekly article with rest and confidence as many of my predictions have, to my surprise, eerily come true all too soon. I’d like to remind everyone why it is so important to make general predictions. As I said about a month ago: if you know where you are going, you know what to expect on the way there. Right now, the Market is using an old map to get to a place they’ve never been before (15,000 on the Dow).

• CORRECT: An inter meeting fed cut is likely to occur or a dramatic fed cut during the meeting (75 basis point).
  • This could be put on hold as inflation concerns, due to the weak dollar, underscore Fed moves. But now we know the Fed could give a rat’s ass about inflation.
  • I think it’s interesting how the market FINALLY agrees with me. It took them long enough. I’ve been saying this for the past month.

Comment on the Prediction:

When everyone said 50 basis point cut, I said 75. When everyone said 100 basis point cut, I said 75. Remember, I said 75 basis point cut back in the beginning of February, so that is foresight. I also put the bond ETF TLT in my original crash portfolio due to this prediction and it has outperformed all other bond ETFs out there. That is amazing. Why didn’t I go with a 100 basis point cut? Strategy. If the Fed cut 100 basis points, it would lose 25 basis points of future “ammunition,” as it is being called nowadays. Furthermore, giving the market less than what they expected is a bullish sign. It is the Fed telling the market, “things aren’t as bad as you think, really.” However, anyone that knows anything knows that completely false.

• CORRECT: The next time we drop to 12,000 we won’t stop there.
  • It just might be this week! If we don’t get there within two-three weeks, I don’t think we’ll test new lows.
  • All the cool kids on the block are talking about, “testing new lows.” The Market is simply comprised a bunch of followers.

Comment on Prediction:

I hit this right on the nose again. I’m even amazed how accurate the time frame I gave was. I said on March 3^rd that we could be seeing new lows within the week and said that if we didn’t cross that 12000 barrier within the next weeks, we wouldn’t test the lows. Now, two weeks later, it just so happened that we retested the lows within the week. Then, I advised wrote about why I was buying Apple call options by the end of the week because we would be seeing a rising market in the near future.

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One of the reason’s I’ve been paying close attention to the market is because a close study of them can tell you exactly what the smart money is betting on. Two months ago I came to a horrible realization that the smart money has been betting on truly catastrophic events happening for quite sometime now. We have a couple of choices, but neither are good. We could go through stagflation, which we’ve been through before, no problem. However, it’s looking like we will be going through deflation if every step is not taken to prevent it, but, again, we’ve been through that during the Great Depression. Yet, the worst of all economic outcomes is an inflationary depression. We have not been through that and the outcomes of such economic times are horrific. Here is a visualization of that possibility from MTV.

I proposed a portfolio last week made to profit not necessary from the collapse of the market but the long opportunities that will arise from the rubble of the mayhem. I’ll be tracking the portfolio using www.theupdown.com on the Subprime Insight group. I heard about the site from a friend of mine working for them and currently attending Harvard. The site is an interesting private equity project that gives individual virtual investors real money for out performing the market. I began the portfolio by placing market orders at the start of trading on Thursday. After the massacre on Friday, the portfolio has held its own with a 0.40% gain, or 73% annualized. That was the stress test, next week will be the profit opportunity. Disclaimer: I do not work in the financial services industry, I am not a CFA and I plan to invest in some of these investments. This is just my subprime insight.

The weighting last week:

Main Plays (75%):

• GLD (20%)
• DBA (20%)
• FXY (15%)
• RJI (10%)
• TLT (10%)

Supporting (25%):

• SLV (10%)
• FXE (5%)
• SHY (5%)
• TSCM (5%)

However, since then I have found some interesting new plays. So I’ll be placing new trades come Monday. I’ve also decided to step up the risk. I love risk. Here is the new portfolio:

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Although Ron Paul is running for President very few people actually know of him. His policies are about as free market as free market can get. Support from Wall Street is raining in from those who understand the perilous position that we are in. These are two videos that every informed American should watch. However, for those that understand economics: his stance is too little too late (I’ll explain that later).

Ron Paul on the Inflationary “Depression” that is coming:
Ron Paul video on his stance for a strong dollar: