I would be lying if I told you the last few days were fantastic. The precious metals sell off has put a dent in my portfolio – some of which has been plugged via SPY puts – and I have expended a fair amount of my cash position (from 40% to 10%) buying the precious metals on this dip. I have added SLV and GLD calls with abandon, only to see them trade lower in the face of what should be a flight to safety. I can only accredit this recent dollar and treasury strength to the 5 minute attention span of market participants who hop from one hot thing to another. If you have forgotten, YES! Ben Bernanke is still printing money at a mind boggling rate, real interest rates are still negative and inflation is still rampant.
My plan is to unload a my SPY puts into trading tomorrow as I believe we will trade further down – I don’t envision good news coming out of the middle east or Japan any time soon. I will also sell the added puts into any rip up in the precious metals, effectively leaving me with my core positions. I hear people on the TV – and some blogs – calling for a bounce because we are oversold. I do not dispute this, and we may bounce this week, although please try to remember how long the market remained overbought. However I believe two things: 1) we will trade down for some time now as this news out of Japan was the proverbial straw that broke the camels back and 2) should we bounce you will have plenty of time to get in, and thus should not waste your money trying to pre-empt the market. We will trade down until the retard dip buyers get punished to the point that they start shorting.
Finally, I feel it is wise to plan for things in the middle east to get worse, quickly.