Crisis Trade (FAS)

We’re flattered, honored, humbled and downright keelhauled by the tremendous response we’ve been getting to our latest postings. In fact, just last night the Mrs. and me were discussing it on the way home from our group therapy session at the local manic addictions clinic.

“Why was it,” I proposed to her, “that folks ostensibly see the benefit of the ‘grow your own’ message that we were elaborating upon last week, but likely won’t take it to heart – won’t get dirty in the yard or on the porch or balcony?”

She just blinked.

I continued.

“The reason, M’Lady, that they’re averse to getting dirt under their fingernails and battling bugs all year ‘round is because they really don’t believe the thing is going to happen. Or, if they do, they think it’s too far off, or that we’ll all go through it together, so who cares if we suffer a little – everyone else is gonna be in the same boat, right?”

matty

We swerved and ducked below an underpass and suffered just minor damage to the car’s underside. But I refused to let the topic go.

“Tell me, Candy-bird,” I pressed, as the tow truck brought us the rest of the way home, “about those on the other side – those who say that if there’s a financial breakdown on the way, then why are we bothering to recommend financial securities at all? Why tell people which stocks and options to buy?

“And the reason, as you know, my dear, is that for them, the crisis is imminent,” I concluded. “The time to go off-grid and head to the woods before the missiles start raining and the feds start taking up menacing positions on the ridge, is now. Just like the super-rich are doing (see here).

“But how do you satisfy all these different types?” I asked her. “What should I tell them?”

pissed

You’ve never met M’Lady Candy-bird, but she has a way of looking at me that tells me straight out that she ain’t happy.

So I left it like that.

But we’re going to continue here…

 

The question of timing is an important one. If there’s going to be a crisis, when is it coming? Folks need to get prepared and buy things and, if they’re serious, need time to change the direction of their lives, time to stop buying stocks and start buying cabbage seeds. Not everyone, after all, can walk out of the office on Friday afternoon and step out onto the back 40 Monday morning. Would that it were so.

That’s why we stressed the importance, first, of getting your group together, finding like-minded people who are prepared to go through the coming period of disarray with you, family, friends, colleagues, supporters and maybe that guy Drake from the bowling alley.

form

Assuming you live in a city, and you’ve got your people together, split up the chores (and the crops). It’s not at all like reader Karl wrote us after last week’s missive. He said (in part) –

“Farming, or gardening as it is called when done in small plots, is hard work, takes lots of time, and requires resources. You have to have good soil suited to growing the crops you want, or buy it, or make it by adding what is missing to that mud out in the back yard. You can’t grow potatoes in clay or rocks. You need fences to keep out the wildlife. You need supports to hold the tomatoes, cucumbers, and beans. It is true, you can supplement your diet with a garden, but to feed a family will require several acres, which by the time you pay the taxes on it, you would be just as well off spending the money on food directly.”

Hate to break it to you, Karl, but we’ve grown enough tomatoes and cucumbers to feed our own family of six in a few intensive square yards next to the house to know that it just ain’t so. We urge you to look at some of the intensive gardening and permaculture videos available on YouTube to get a better idea of what’s possible. Then give the peppers and beans to the in-laws, the corn to Aunt Myrtle and the potatoes to Drake.

happily

With your garden planted you’ll have achieved some of the spirit necessary to see you through. We urge you to start ASAP.

As for investments, there’s no need to stop now. As we stated many times in the past, it won’t be until a loss of confidence envelops a solid minority of folks that the system will crater. And that could take years. We don’t put stock buying on hold because one day there will be a bear market. Just like we don’t stop living because one day – yes, it’s inevitable – we will die.

And because 1) there’s very little reason to suspect we’ve yet entered into a bear market, and 2) we’re still far from dead, we recommend you look at a two-way speculative trade on the financial sector.

Here’s a chart of the financial sector as represented by the Russell 1000 Financial Services Index

russell1000

The chart shows the potential for near term weakness, particularly if the 137-day moving average doesn’t hold (currently at 1275, in red box).

At the same time, it’s hard to see a protracted decline unfolding at this stage.

Which is why we prefer to use the steroidally leveraged Direxion Daily Financial Bull 3X Shares (NYSE:FAS) to play this one.

We’d buy a near term, close to the money PUT on FAS and a longer term – maybe six month – cheap OTM CALL.

And play the swing both ways.

Many happy returns,

Matt McAbby, Senior Analyst, Normandy Research

See what people are saying...

  1. john

    I am as always on the fence, but I understand his fear a great deal, I am with you in the fear trade, very scary stuff out there. Funny New Zeland I was just speaking with my wife about New Zeland

  2. Karl

    Don’t be so quick to dismiss my comments on gardening. Everyone who has an interest in growing some food items grows tomatoes because they are generally easy to grow and taste better than stuff picked green somewhere and shipped in. Other crops depend very much on the soil quality, daily temperatures, and pests. When I lived in Washington, Illinois, Ohio, and New Jersey, you could pretty much throw the seed in the ground, then jump back and watch it grow, but now I live in SE Tennessee and nothing but weeds can survive in this clay-rock soil, heat, and pest ridden environment. To make a garden, I had to have soil brought in – $400 for a 12′ x 12′ x12″ plot. I try not to use insecticide to avoid killing bees which are essential for squash, beans, tomatoes, etc. to pollinate, but the caterpillars, slugs, beetles, etc. are relentless. Potato blight doesn’t help. Turnips have to be planted in Feb, so they can mature before the heat in May makes them go to seed. I haven’t yet figured out what is needed in the soil chemistry to make carrots taste good, like they do in NJ.
    In Pennsylvania, my grandfather used to feed a family of 6 out of a 2 acre garden starting his plants from seeds in cold-frames. My grandmother would can food for winter and she also raised chickens. His son would hunt deer and the other kids would collect chestnuts and pick berries, but, they still had to buy flour, sugar, salt, and other staples. That, plus a job is how they survived the depression. My point is that, even in good soil, gardening enough food to feed a family and preserving it for the winter is a heck of a lot of work. Try it sometime, then you won’t be so glib about the prospect!

  3. John Szoke

    I’m not a vegetarian, so that plan will only go so far. I have however dusted off the old premium wines in the wine cellar to get ready for use. I’m also considering for the first time in my life buying firearms. I’m looking at RGR as a longer term investment. Crazy times!

  4. charles phelps

    What gardening approach are you talking about?

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