Loading ...All around me, I see nothing but unrealistic optimism. Some numb nut on CNBC actually had the balls to brag about his buy and hold strategy. The CBOE VOLATILITY INDEX (VIX) is less than 25 like we are in the middle of some great bull market and there is no risk in investing in equity. Everyone is crushing earnings (how can they not, mark to market is dead and level 3 assets are worth whatever you think they should be). The bank owned house in front of mine is going for 25% of the asking price in 2006, all cash offers only (a 75% haircut). Goldman Sachs employees, 28,000, are getting millions of bonuses thanks to billions of dollars funneled through backdoor AIG bail outs. Wow, it’s like giving 28,000 New Yorkers a free lottery winning ticket.
Yet, I am more pessimistic today than I was at the top of the crash. Back then, I believed in free market capitalism. I was able to look at a company’s financial statement and logically reason if it was undervalued or overvalued. More importantly, I didn’t have to worry about my well managed bank competing against incompetent government owned too big to fail corporations. Everything that needed to be done to REALLY fix our economy was skipped and easy short term manipulation was selected. Our leaders made the biggest mistake anyone can make, reward the bad behavior and punish the good behavior.
Based on these undisputable facts, we at Alphas Edge will make some very sound predictions. One, next earnings season is going to disappoint. Two, we can expect more unethical behavior as the economy gets worst. The masses will follow their leader’s example and act as they did. Three, the buying power of the dollar will decrease and with it the Americans quality of life. Four, next year countries around the world will start to raise rates although in reality they should be continuing to lower them. Five, by the time this recession is over, we will be referring to this period of time as the second depression.
My only advice is with the VIX around 24, this is a really good time to buy out of the money options (both calls and puts).
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