Replies to post #14910 on General Stock Ideas

[gfp927z]

Bigworld, One thing Rickards never seems to recommend or even discuss is shorting. I don't subscribe to his newsletter, but have listened to many of his interviews, and his main hedges are gold, hard assets, cash, and some Treasury notes. He may have mentioned shorting once in relation to the British pound and Brexit (several years ago), but that's about it.

I assume there's a reason for that, ie it's too risky. Shorting means you are going up against a Fed that has been determined to re-inflate the stock market since 2008, and now presumably want to maintain it at/near these higher levels.

Some day Rickards may recommend shorting, probably when we're very close or actually in the midst of the collapse. But he says when the big collapse comes they will probably institute 'Ice-9' and the stock market will be closed, accounts will be frozen, perhaps for months. In that case having short positions won't help since all trading has gone dark.

So gold seems like a better bet than trying to short, a lot safer anyway.

[gfp927z]

Since the Fed has failed in its attempt to normalize, it's time to start considering some endgame scenarios. The Fed still has some 'ammo', although limited -


Interest rates - the interest rate 'ammo' available to the Fed (approx 2%) will be used up quickly during the next recession. Historically a 3-4% drop in interest rates is required to get out of a recession, and we only have 2% available.

Fed's balance sheet - Looking at the Fed's balance sheet available for more QE, the big question is what will be the upper limit (6, 8, 10 trillion) before confidence is lost in the dollar? Currently the balance sits at approx $4 tril.


Even a mild recession will put us at ZIRP or even NIRP, and on the Fed's balance sheet side, they can probably expand from $4 tril to $6 tril without a run on the dollar. But how much higher than that before you reach the confidence limit for the dollar?

Bottom line, we can see where this is heading (SDR bailout), and the only real question is how long? The key factors will be -

1) The severity of the next recession

2) Whether there is an associated financial crisis

With all the Derivatives out there, some type of financial crisis wouldn't be surprising once stresses start to build. Just look at the past week, where the Fed was forced to pump $275 bil into the repo market over four days.

To delay the process, all sources of instability should be minimized. So resolve the China trade war, avoid war with Iran, etc.

Meanwhile for us investors -- gold (10%), cash (30%), hard assets, Treasury notes, and for stocks mainly focus on the resource sectors (gold mining, oil, water, land, etc).