Revenge

by JDH on July 11, 2009

Hello, my name is Inigo Montoya. You killed my father. Prepare to die. – Inigo Montoya, from The Princess Bride

Looking back on the Depression of 2008 to 201? ten years from now, what will young people say? Will today’s 20 somethings, just entering the workforce, blame the older generation for the problems we have created? Will they be looking for revenge? Or will they learn the value of hard work to take care of themselves? Ask me in ten years and I’ll let you know.

employment

There’s little doubt that the picture is not pretty now, and it’s getting worse. According to Statistics Canada, full time employment fell in June, self-employment rose (since if there are no jobs available, you have no choice but to create your own), and “Youth aged 15 to 24 were hard hit in June, with losses of 33,000. Their unemployment rate went up a full percentage point to 15.9%, the highest rate in 11 years.”

In the United States the problems is just as bad, if not worse, with the unemployment rate sitting at 9.5%. Green shoots? Signs of recovery? Sorry, not yet. Times are so tough that Sears has already started their Christmas sales! In July!

Consumer and government debt is at record levels, and that is the root of our problem. We have too much debt, and can’t shake it.

I turned 45 years old last week. Being 45 means that I have lived my entire working life with easily available credit. When I started university in 1983 the first person to greet us at the door on orientation day was the person handing out the credit card application form. On it were listed about a dozen different credit cards. Fill in your name, send it off, and you would qualify for a student credit card with a $1,000 limit. That was huge money for a young student who spent his summers working for $6 per hour. Is it any wonder that we get hooked on credit?

I am fortunate to have no credit card debt, or bank loan debt, or any kind of unsecured debt, but most are not so lucky. We have debt, because without debt we would not be able to afford the necessities of life, like a big screen T.V., fancy car, huge house, and so on.

And that’s the problem. Since everyone has a big screen T.V., we believe we must have one too. How else could we watch the most important news event of our time, the four hour funeral for some guy who hasn’t had a hit in 15 years, and is only famous now because of all of his legal troubles?

This is the world we live in, folks. CNN devotes a week’s worth of news coverage to a non-event, while ignoring the real news stories: rising unemployment, massive government debts, and consumers who are simply giving up.  As people realize their lifestyles are not sustainable, the collapse will begin in earnest.

And the young people of today will wonder why their parents could borrow to buy everything, and they can’t.  They may well want revenge on us for the mess we have created.  (I hope they decide to work hard, save their money, and buy only what they can afford, which is the only way we will extricate ourselves from this mess, but that’s just wishful thinking on my part at this point).

spxjuly10-09

Yes, I know you are tired of hearing me beat the same drum, over and over and over. I know you are tired of me being a pessimist, telling you that the worst is yet to come. Unfortunately I have to call them as I see them, and I don’t like the looks of what I see. Tell me honestly: does the chart of the S&P look good to you? It looks to me like the bear market is alive and well, we have hit the fourth “peak” in this market (each lower than the previous) and it’s now time to test the lows again. I would not be at all surprised to see 700 before the end of the summer.

I also expect the market turmoil will drag everything down with it, so I expect the gold and other resource stocks to have a temporary set back as well. So, this week, as I did in June, I sold calls against all of the gold and silver stocks I own. My portfolio is 80% in cash, 20% in gold and silver stocks. It’s those stocks that I sold calls against (covered writing). I assume that with the pull back in progress the options I sold will expire worthless on Friday (the third Friday of the month), and I will keep the premiums, as I did in June. (The calls I sold were around “at the money”). If the market rallies this week, my shares get sold, and I make the profit on that, so either way I win. I’ll buy them back later on the dips.

That’s been the game plan for the last few months, and that will be the game plan for the rest of the summer.

Will I get my revenge on this market, as Inigo Montoya got his revenge against his father’s killer? Who knows, but I will be patient, and I will sit and wait, at least until next week. See you then.