Trade Alert – Gold coins, Softee calling and “This won’t end well”

Two trades to mention for you here first.

I’m going to trim about 1/10th of my MSFT call options, as they’ve now become nicely profitable. I also bought a few more gold coins this weekend, paying just over $1300/ounce.

We were set up for this now ongoing Bubble Blowing Bull Market back in 2010 and 2011. With currency wars continuing to escalate, with the corporate economy continuing to grow backed a coordinated global governmental policy effort and QE and 0% interest rates and all kinds of unprecedented subsidization of current markets and corporate profits and a general financialization of our economy, I expect there’s still much more bubble to come before the next pop/crash comes. But let’s consider some flipside here.

Do you remember all the articles in 1999 and 2000 about the “daytrading craze”, mostly centered around dot-com and tech stocks? Ordinary people who had spent their lives working to become a professional in their respective fields, from doctors to lawyers to cab drivers, were “supplementing their incomes with daytrading“.

I do. I remember when stocks went up almost everyday for two years, even after they’d had several years of a big move straight up already. Friday night I was reading USA Today on my iPad Mini when I came across this article. I want to highlight a couple quotes out of that article that kept me up at night over the weekend after I’d read it.

Rising riches: 1 in 5 in U.S. reaches affluence

In this country, you don’t get anywhere without working hard,” said James Lott, 28, a pharmacist in Renton, Wash., who adds to his six-figure salary by day-trading stocks. The son of Nigerian-American immigrants, Lott says he was able to get ahead by earning an advanced pharmacy degree. He makes about $200,000 a year.

This is the real kicker of the article. I mean, we’re talking about a hard-working immigrant who has lifted himself up out of poverty to make a six-figure a year pharmacist job, doing something he spent years training and becoming qualified for. But he just assumes that he is supplementing his six-figure salary by day-trading stocks.

In my book, Everything You Need to Know About Investing, I highlighted wrote this about day trading, “If you’re day trading, you have to plan for both hot and cold streaks that will come and you have to know and be able to handle that some of those hot and cold streaks will last longer and shock you more than you’d ever thought possible. And that over the next 10,000 days, all investors and traders need to get more trades right than wrong and maximize their gains while minimizing their losses as they do so, no matter their time-horizons for each individual position and no matter what’s going on in the economy or the broader markets.”

Do you think that James Lott is prepared for a cold streak and a down market, both of which will happen at some point?

Back in 2007 I started a series of columns called “This Won’t End Well” in which I’d feature quotes or charts that we’d look back on at some point and laugh about how out of touch they really were at the time. Well, back to our USA Today article about how rich so many folks are supposedly getting in the US, right now:

…In Miami, developers are betting on a growing luxury market, building higher-end malls featuring Cartier, Armani and Louis Vuitton, and hoping to expand on South Florida’s Bal Harbour, a favored hideaway of the rich.

“It’s not that I don’t have money. It’s more like I don’t have time,” said Deborah Sponder, 57, walking her dog Ava recently along Miami’s blossoming Design District. She was headed to one of her two art galleries — this one between the Emilio Pucci and Cartier stores and close to the Louis Vuitton and Hermes storefronts.

But Sponder says she doesn’t consider her income of $250,000 as upper class, noting that she is paying college tuition for her three children. “Between rent, schooling and everything — it comes in and goes out.”

Do you think its wise for a 57-year old mother with three kids in college to be spending all her annual income on “rent, schooling and everything” so that all that quarter million dollars a year she’s bringing in “goes out”? Has she forgotten the lessons of 2008? Have you? Let’s finish up here with this article then.

…The new rich includes Robert Kane, 39, of Colorado Springs, Colo.

A former stock broker who once owned three houses and voted steadfastly Republican, Kane says he was humbled after the 2008 financial meltdown, which he says exposed Wall Street’s excesses. Now a senior vice president for a private equity firm specializing in the marijuana business.

“Humbled by the 2008 financial meltdown” so he’s now a “Pot PE VP?” I’d call him a dope dope.

This won’t end well. I do expect we’ll be reading many more of these types of articles that accidentally underscore just how bubblicious these markets and our economy have become right now. Private equity jobs, day trading income, luxury stores and art dealers expanding, and people making a quarter million dollars a year don’t consider themselves rich, these are the things that bubbles are made of.

As I keep pounding home to you guys, the time to be aggressively long was before these types of articles and all this complacency had set in. There’s probably more upside to come and perhaps “it’s different this time,” right? No, it’s not.

And successfully navigating all this over the next few years will continue to require staying in front of these trends and not reacting to them after they’re already here.

I will of course do everything in my power to help us navigate these wild economic swings as successfully as I did when starting my tech hedge fund at the bottom of 2002, closing it at the top in late 2007, and getting back into the markets aggressively in 2010.

Stay tuned, stay flexible and stay objective.