Time to do the Opposite and Sell into this Bear Market Rally

Aren’t investment guru’s always telling us to do the opposite of what the public are doing if we want to make money in the markets?

Well now is the time to do just that, and to exit the markets if you can. Don’t follow the herd.

Apparently Allan Moss the ex-CEO of Macquarie bank has been selling down his shares in Macquarie Bank since he retired about 8 months ago. I read he has sold 300,000 shares and has 81,000 remaining. Macquarie Bank has been called the millionaire’s factory because of all the high salaries and bonuses paid to its executives. They have been very successful in the bull market.

Mr Moss’ timing was perfect and we should all take a leaf out of his book because he was very successful whilst at the bank. When he sells down his shares in the bank he almost single-handedly created we should take note. He knows something and we’d be wise to follow his lead. He was paid about $33M last year so he has no need to sell his shares at this time. So ask yourself why would he do that?

Unfortunately we have already seen the US Government stepping in to stop people getting access to their money. They have frozen redemptions on money market mutual funds because too many people want to get their money out. See how easy it is to stop you from exercising your right to protect yourself?

Right now the US FED is giving Wall Street and the Banks a “get out of jail free” card. Stopping shorting the markets may be the only option but it has now taken away the fear that needs to be there to make Wall Street rational again quickly.

The US Government didn’t worry about excessive speculation causing the bubble but are now stopping the very process that can bring it to a close quickly and punish those that caused the problem.

If there hadn’t been excessive leverage and speculation the shorts would not be able to do what they have done.

If the truth be told now, the smart money will be riding this bear market rally and exiting as close to the top as they can. They’ll take their money out first then yours if they have time. They’ll need your cash for the next pump and dump so you can expect to take yet another loss.

But moving your money into cash is a big problem because there is just too much of it to get out without sending the market down again. Oh well, they told you it was a long term investment didn’t they?

If you don’t get out with your money intact it will definitely be a long term investment. This could be the big one, an extended bear market. It may not get any worse but it is not going to get better any time soon.

This bear market rally will likely stop when everyone thinks they can get out even from last week losses, or as close to it as they think that can get without going down with the market a second time. Then it will probably retest the lows of last week. If it holds we are likely in for a long time of bubbling along at that level. If it doesn’t do that, look for further massive market turmoil.

After 25 years of leveraging any asset they could find Wall Street ended up selling mortgages to people who could not afford them. Then they packaged those mortgages up into CDO’s, bought a AAA credit rating and leverage them to get more money to do it all over again.

In the US mortgagees can just walk away and the bank then has the problem to maintain and sell the vacant houses. This is still happening. It is not going away. As more mortgages attract the higher interest rates more people will just walk. Most have no choice.

Right now we are told there are whole suburbs that are empty except for vandals and other low life bent on destroying value. These “low-life’s” are also forcing people who are still trying to pay their mortgages to give up and leave because of the danger to themselves and their children.

The American taxpayer is going to end up owning all these houses that may well need thousands of dollars in repair bills to make them saleable again.

I was reading today that the US Government can’t just print money to bail out Wall Street though. It borrows the money which means it is competing for money loaned to banks and other entities. This they say will force interest rates for lending to sky-rocket, further exacerbating the banks’ efforts to re-capitalise.

So don’t be fooled by this market rally. If they pull it off and the market does a V recovery, great. But if not what will you do? You need to look at a worse-case scenario and try to protect yourself from it. I’d be looking to get enough cash together for at least five years and depending on what happens in the next few weeks or months put some of it in government bonds, gold and even consider burying some in the garden as ready cash.

The worse may never happen. But if it does you will have half a chance of coming through it with some assets intact. More to the point you will have cash to invest in cheap assets to recover what you might have lost due to Wall Street greed.

Maybe now is the time to read “Fooled by Randomness” reviewed in an earlier post. Remember, “It doesn’t matter how frequently something succeeds if failure is too costly to bear”.

One Response to “Time to do the Opposite and Sell into this Bear Market Rally”

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