Latest Positions – A game plan for a corrupted system

Is the entire stock market and the system it supports (or that supports it?) completely corrupted at this point? Think about it before you answer. Then click here and take our WallStreetAllStars.com poll.

Knowing that most trades and prices in the stock market are set by computer algorithms and high-frequency trading software programs on a daily basis, do you believe you’re getting a fair shake in your stock portfolio? If you know that millions of Americans have been forced into stocks and junk bonds in search of some sort of return on their savings, do you believe that the average stock is actually reflecting a “fair value”?

Why would you invest in something you know is being artificially inflated? Because you also have no alternative? Will the best approach be to go with the herd being forced into an artificially inflated asset? Or will we want to leave the party before everybody else, like I did back in October 2007 when I closed my hedge fund and sold all my stocks.

People say trying to time the top of the market is a fool’s game. Are we sure that the guy saying that isn’t the fool at the table?

If I tell you that physical gold in the vaults at the major banks and the Federal Reserve had been “rehypothecated” meaning that they’ve been used as collateral many times over with leverage piled on top of each collateral, do you believe that the “spot” prices you see quoted are accurate reflections of the value of gold? What if I tell you that the system of so-called “price discovery” for gold and silver is the exact same system that was used by the now infamous LIBOR scandal in which the giant banks colluded to scam the system? Which was the exact same system that Enron and its trading partners used back before they got sent to jail for rigging prices in California? Why wouldn’t you be investing in something that’s being artificially repressed?

How about the Treasury and bond markets? Most Treasuries are issued by the Treasury and bought by the Federal Reserve. The others are telegraphed to the biggest traders with the biggest funds (the TBTF banks, of course) which then get in front of those trades which has led to nearly 100% profitable trading days reported by those traders for the last few years. Confidence in that? I don’t think so.

Bank profits are at all-time highs, accounting for more of the nation’s GDP than they ever have, yet the Federal Reserve maintains its “financial crisis emergency 0% interest rates and other recently created subsidies for the banking system. We haven’t seen a single banking executive at a TBTF bank get prosecuted despite the ample and obvious laws they broke and continue to break. Robosigning, document fabrication, mark-to-fantasy and other ongoing crimes are settled for a few pennies on the dollar and the little guy can’t get consistent relief in the courts. How many farmers are still out big money from the MF Global scam, in which the firm had rehypothecated their clients’ own accounts to several different banks. See the gold example above and remember not to bet on any paper promises for gold, ok? Do you want to keep your money in banks, much less invest in their stocks?

I’ve quit very lucrative jobs in my career several times because I felt the position compromised my ethics — being paid in commission as a stock broker at Oppenheimer, for example, led to extreme pressure from my bosses to get my clients to trade more actively whether it was in the client’s best interest or not.  I had a seven-figure contract that I walked away from at age 25.

But that early experience with ethical challenges in our system, pales in comparison to the no-holds-barred rent-seeking and above-the-law attitude that pervades most of Wall Street today. On a date with a Goldman trader back in 2008, I was appalled when she told me that her front-running her big mutual fund clients’ trades was no big deal because everybody else on Wall Street does it and its not like she’ll ever get in trouble for skimming a few dollars from other people’s money anyway.

I don’t think anybody who knows insiders on Wall Street would be surprised, much less appalled, to hear such a comment in passing today.

Thinking it through to the end-game then, the question we’re answering seems to be – is the system and the stock market doomed? If the major markets are rigged, artificially being inflated and/or deflated, corrupted, and not regulated or policed in a fair manner, then doesn’t that mean we are doomed to become a banana republic? Knowing the US has only 4% of the world’s population, what has been the key reason for our nation’s outsized wealth and power? I would argue that it was partly that we had the strongest rule of law and enforcement of all rights equally that gave the world confidence in our system and financed much of that wealth and power. If we no longer enforce laws equally or have faith in the fairness of our banking systems and the markets they support (or is now that the markets support the banks?), then why would people keep confidence in our system and markets?

And economic confidence is not a zero-sum game in which some other country that’s slightly less corrupt than our new system is going to get all that wealth that we are now leaving on the table. The systems and markets in China, Russia, Brazil, the EU, and Britain are no better than the new system and markets here in the US. Cuba, Japan, Mexico, Korea (North or South), Iceland aren’t exactly safe havens for your money now are they? You can bet on Canada or Australia or some other country if you want, but if the world loses faith in the other biggest sovereign systems and markets, I can’t imagine your money is safe anywhere across a border, no?

So, what’s the game plan? It remains the same.

You want to remain net long those inflated stocks for at least a while longer, but much less aggressively long than we were two and three years ago when stock prices were much lower. You want to keep buying and scaling into more real physical gold and silver (and a tiny position in BitCoins too). Coins and bullion that you have stored yourself somewhere safe (not a paper promise, but the real stuff that you can hold). You want to start shorting Treasuries, but not rush into a big position anytime soon.

The trends and systems and bubbles we’re seeing in front of us presently can last much longer than most bears thinks possible. We were right to get aggressively long stocks back in 2010 when we returned to the markets. Back in early 2008, when the Republican/Democrat Regime created the TARP bailouts and declared rule of law dead with the emergence of “Too Big Too Fail” banks, I got scared. I was fearful because others were being greedy as the stock market and real estate prices were at new all-time highs. I was scared because when the banks’ shareholders and executives and lenders were bailed out with taxpayer largesse, it put the Republican/Democrat Regime in the position of needing the bailouts to work, which meant they were fully abandoning rule of law.

And long before that, I was lucky enough to start a hedge fund at the lows in October 2002. I don’t make any promises, but I will actively be on the lookout for indications we should go against the trend we’re still riding right now.

My biggest concern should be your biggest concern — how can we root out the corruption in the Republican/Democrat Regime and the system it supports so that we can avoid the ultimate collapse of our economy, markets and system? Ironically, stopping the corruption in the system would likely crash many of our markets and crunch our economy for a short-time. But it would be shorter and much less severe than the ultimate end-game of the corrupt system we’re perpetuating presently.

In the meantime, here’s a list of my latest positions in approximate order from largest to smallest. I give each stock a current rating from 1 to 10, 1 being “Get out of this position now!” and 10 being “Sell the farm, I’ve found a perfect investment” (there will never be a 10 rating, because there is no such thing as a perfect investment, of course). Anyway, here’s the list:

Longs –

• Real estate (7)
• Physical gold & silver bullion & coins (9)
• Sandisk (7)
• First Solar (7)
• Google (7)
• Intel (8)
• FutureFuel (7)
• GLD (7)
• Apple (7)
• Facebook (8)
• Juniper (7)
• Amazon (7)
• Lindsay (8)
• Ciena (7)
• Nvidia (7)
• Marvell (7)
• VIX (6)
• SLV (8)
• Zynga (8)
• LinkedIn (8)
• Autodesk (7)

Shorts –

• EWY (8)
• MS (8)
• GS (8)
• CSTR (9)
• Apollo (8)
• SPY (8)
• IEF (8)
• Dollar Tree (8)
• JPM (8)
• LPS (9)
• IBM (8)