Thursday, April 16, 2009

My Speculation Says It All

Faithful readers of Crusty's blog know that I remain very cautious and expect stocks to revisit previous lows during our protracted recession. When the market finally goes up and stays up it will require years of ownership to regain prior peak pricing since the leverage that fueled those prior earnings will not be present. We're probably starring at a decade of negative-to-slow growth. Lower profits will not justify high multiple so stock prices will not be returning to old levels for years.

That's the main reason I haven't been writing about any new long ideas. Patience will let me buy at lower prices later. Since the market's present bias is upward, I haven't written about any short ideas because you can go broke shorting stocks when the market wants to go up. So, I've shifted into neutral for the most part.

The present run up is speculation driven and that can be seen in the performance of all the $1ish  type stocks. The Citis, AIGs,GMs, etc have all have spectacular runs. Crummy stocks have done wonderful. Here's an example of Crusty's premise that speculators are swinging for the home run. As a public service I am not going to name the company in my example, it is beyond risky. Not more than 3 weeks ago it sold for .004. That's right, less than one half of one cent. Today it is .02! A 5X move. This company makes C look good. People are betting wildly and this rally will finish off a lot of investors. We will finally get capitulation. Wait for it.

Stay defensive, be patient, and let speculators party for awhile. There will come a time when negative bets make sense, then, following capitulation, a time to buy. Unless you know a company that is going to be purchased, bide your time. If you don't agree, for heavens sake, don't chase the lower priced speculations.

1 comment:

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