Unfortunately, by the time when you read this, it could be already too late. At least, it is probably already too late for me because I might have lost one third of my total net worth, my in-the-money company stock options, without the possibility of recovering it ever (since mid-October of 2007).
So what is this second most important thing potentially about investing for the next decade? It is the BIG ROLLOVER discussed originally at MillionaireNowBook.blogspot.com. Larry was extremely gracious enough to grant me the permission of reprint here (I hope he still remembers that from an email exchange). He is a generous and wise person, and in times of uncertainty like this, I read his blog for advice in my thinking dungeon. In any case, you can see the full original text below.
In what can only be described as the largest unwinding of the excesses of the past 50 years, we are now facing what Nick Russo calls, “The Big Rollover”.
I first wrote about the THE END OF THE GRAND SUPERCYCLE? back in September of 2006 and re-posted it on November 22, 2007. In that post I described what the Big Rollover was and noted that it was to begin in mid-2008. Then, I listed various things one can do to survive the coming storm.
2008 is here and now Nick warns that we are facing the greatest trainwreck in history. He calls it a “period of cleansing” that will last 10-15 years as a corrective cycle.
He claims that CNBC is nothing more than “Infotainment”, because people want to know what happened yesterday and what’s happening right now. But, what they are missing is a repricing of the entire planet. Hard money is trump. The public is just waking up to that notion. Gold is the new copper and food is the new oil.
We must a approach this coming storm with a postive mindset. He doesn’t believe people are prepared to face this situation because:
Housing will not come back.
We don’t want to hear negative things.
We are (only) programmed to believe that everything will be ok (because they always have been after a crisis since WW2)
We don’t know how to handle a negative event.
We tend to think “In the end, someone will bail us out”.
This period of unwinding will be much more extreme than what we faced in the Great Depression. That’s because of credit and demographics. The fact that everything is highly leveraged will mean the unwinding will be excellerated on the way down.
Deflation is the bread and butter for Treasury Bonds, both short-term and intermediate-term. But, the key will be timing. Rates will go up to defend the dollar. Tips (inflation protected bonds) will also become good places to “hide”.
All of this is happening in the 8th year of the bull market in commodities that, according to historical cycles, will run 9 years (every 30 years for the past 200 years) and end around 2010. (prior starts – 1911, 1941, 1971, 2001). Why isn’t gold at $1500 when it should be? I don’t know, but the big moves don’t happen overnight. Expect 80% of the move to happen in the last 20% (2 years) of the cycle. Expect gold and silver to continue up and with each Energy correction, view it as a time to step back in as we are in a global energy crisis.
Expect another shock to the system, such as an event like 9/11 which will push us faster into the rollover. Do things to protect yourself and cocoon yourself in order to ride it out. This means a couple of huge things to me: reduce debt everywhere in your life and create sources of income.
The higher stocks went up over the years the more shock it creates going down. And, with all the leveage in our financial lives, people simply don’t have the “cushion” for a prolonged downturn in the equity markets.
Personally, I have hedged my equity accounts and continue to write covered calls on long stocks. I own a long-short fund, many gold and silver mining stocks, some physical gold and silver, PHO, DBA, Precious Metals Mining funds, the Permanent Portfolio, short and intermediate taxable and tax-free funds. I also maintain about a 1/3 debt to real estate equity postion so that my RE income stream is all positive.
My own prediction is that there could be one last chance for selling out, IF the BIG ROLLOVER scenario is true. I believe that the markets will again top out early next year in 2009. Nick Russo was probably very close in its timing, landing the prediction right in a potential double-top in 2007 and 2009 (although I believe that the top in 2009 can be well below the top in 2007). Todd Harrison just compared the current stock market with 1998 and 2001, and possibly 1929. In my opinion, it’s none of the above, but possibly a mathematically combined charts of 1998 and 1929. The markets will probably fake even more bulls to come, as a combined chart of 1998 and 2001. Then it will roll over to 1929 style, except only in spirit (inflation-adjusted), not in (raw value) chart.
Boy, what a heavy topic to talk about. But just don’t say that I did not warn you. The coming months and years for the investment world will be painful, if not really painful. Deflation, and then hyper-inflation possibly in that particular order. Both scenarios will probably whack all possible investment that you can think of, if you don’t switch your investment strategy in time for either transition (since the investing strategies for those two scenarios are exactly the opposite, except maybe for the gold part). Yak!
And you can all give “thanks” to the “maestro” Greenspan for contributing to this cause.
