SURVIVING THE GAME
MARCH 2, 2009
2009 – 18

I hope all of you realize the magnitude of what is happening. The daily noise of the market commentators can actually numb a person so the reality of what is happening escapes them. The moves in the equity markets are almost unprecedented, eclipsed only by the 90% move down from top to bottom in the crash of 1929 and the following 4 years. The bottom was hit in 1933 and it took until the mid 1950’s to reach the pre-crash levels of 1929. Also look at the period from the mid 1960’s to mid 1970’s. It was another lost decade in terms of equities. Those of us a little younger were fortunate not to have invested through those times but they may have returned. How low will we go and how long will it take to recover to the old highs set in 2007? I believe it will be many years, possibly another lost decade.

Peoples nest eggs, education funds and net worth are being decimated and the hope of rebuilding them slowly disappearing. We were sold on the “ buy and hold “ philosophy and it turned out to be a lie. But what will happen next? The decline in the markets threatens the core of our financial world, not just the banks. Life insurance, annuities, essentially most long-term financial products were created and based on assumptions of long-term returns in the equity markets of 6-8%. Even the CPP and QPP started to invest in equities. Many also mix in real estate and fixed income products but with long term government bond rates at 2-3% and real estate declining, where will the money come from to pay these contracts? How secure are your insurance policies, annuity contracts and pensions? I became convinced 20 years ago that I would never receive a dime from CPP even though I have been forced to pay into it. If I had a company pension plan I would be quite worried about it as well. What is it invested in? I believe the only defense is to accumulate large amounts of money, far more than you will ever need. You then must diversify across the globe and also across many asset classes, eg cash, equities, gold, real estate, etc. Only then will you be able to weather any financial turmoil that descends upon you.



I believe you will be forced to look into the world of “ alternative investments “ in order to be able to rebuild your wealth. These are the very products that have contributed to the financial mess we are in but they will also be the ones you can use to come out the other side. I am speaking about commodities, currencies, derivatives such as options and futures. If the equity markets continue down and/or simply level out and spend years stumbling along, it will be these types of investments that allow you to rebuild your wealth. I do not see real estate or fixed income coming to the rescue any time soon. Believe me, I hope I am wrong. I too own a home; have insurance products and an education fund for my children. All are down in value and may be threatened in the future. I’m not predicting an end to the financial system, as we know it, just a prolonged period of little to no ability to generate a decent return using traditional methods.

FILLS:

Sold CDN$ 7900 straddle instead of 8000 after lower open this morning. Netted 341 total. Stops at 7450 and 8350. Closed today at 77.70 on CDN$ and 348 on straddle.

OPEN POSITIONS:

Not out yet but getting close on both SPY straddles. Hold both. Hold USO and SU positions.

NEW TRADES:

No new trades but I have adjusted exit stops on SPY straddles. See position summary.

As always I am available if anyone would like to discuss the strategies employed in this newsletter or just to yak about trading, investments, etc.

Options Guy
Editor
Surviving The Game
optionsguy@shaw.ca