I am preparing to go all out long, in a time frame that may not be very far from here. Trust me it does not mean very well for those happened to be net long at this time.
But before I do that, I want to ask a question to otherwise very rational, intelligent people, that have in the past 3 months invested in the belief that 1) given the cost of PRIVATE capital is higher than the range of possible returns, and 2) the cost of SPOT government borrowing is lower than the range of PAST returns, decided to invest in the direction indicated by 2). That meant going long.
There were arguments in WSJ showing S&P chief economist, Mark Zandi, saying that for every $1 stimulus, $1.64 return will be earned. Bill Miller of Legg Mason, earlier today gave a speech recoginizing Mark's remarks and the currently low cost of SPOT govt borrowing as it relates to Keynesian spending. Obama presentation showing a lack of internet penetration among minorities argues also for expansion of infrastructure.
What I observed today:
1. Nationalization of C, and perhaps BAC as early as Monday. That means everybody else will also be nationalized, as nobody can compete with the US govt and if they tried to do so, will go BK.
2. Realization that a huge ETF, USO, may be a ponzi scheme that relies on new investors.
3. Announcement by the government to settling the debt of a gambler who bet on unregulated CDS market (same as dog racing), AIG. The last interest payment (quarterly) on this was $37B.
4. A possible announcement of some kind from UK/Europe this weekend.
5. The most massive liquidation of hedge fund that will ever happen.
6. A possible 50% shortfall on income taxes in 2009.
7. USSR did not earn 64% return on its investment between 1950-1989 in any given year.
8. Spot yield curve is not a predictor of future interest rate.
Item #1-5 supports the idea of going long in the near future for a massive dead cat bounce. #6-8 is the invisible hands that kept writing on the walls of my cube.
Therefore, I pose the question as to how the most rational investors I have known decided to believe #1-5 was irrelevant THREE months ago and were on the same side of Bill Miller and Mark Zandi today.
This is not meant to be a satire, but more of an honest response so we all may learn how we think over time and the events that correspond to that thinking.
In closing, I would like to quote Warren Buffett, that he "never bought a stock". Within the context of today's realities, would you say that is a good thing?
Thanks and have a good weekend.
PS: 9. I have used internet for 13 years now and I am not a Google Brother.