Wake up America
By Glen Bradford
I’m an MBA now. That means that everything I say is a fact, right? In the last few years, I started with less than nothing and essentially graduated into early retirement. It’s been a while since you’ve heard from me. In that time, I’ve had several incredible learning experiences and I have many things to share. That said, sharing everything in one article would not be effective and I’ll do my best to summarize my thoughts and outline actionable ideas. I advise that move forward and ignore this article if you’re not interested in improving who you are, financial situation included. I want to first cover an overall perspective of what’s going on. I honestly believe that you need to have an idea about what is going on before you can really take any coordinated, planned, successful action. Hence, I default to doing nothing. All man’s miseries derive from not being able to sit quietly (Blaise Pascal). Note that Warren Buffett and Mohnish Pabrai would agree with me here.
Don’t be a wimp, buy the dip. The market dip we’ve seen is likely to rebound. Crashes happen when things are getting worse. As far as I can tell, the European bailout is going to be contained and deleveraged without much more panic. China is slowing down their growth engine and adding oil so it doesn’t overheat and break (smart). When people were on TV Thursday telling me that “Any sale is a good sale,” I promptly logged in and bought as much as I could. Heck, if I can name the price, I guarantee I can name one where I won’t lose money. I feel like I’m trading paperclips for gold sometimes.
The Next Black Swan. Alright, this one is going to be a shocker, but everyone and their mom is in denial. During finals week, you could have found me in the fetal position on the floor for 2 reasons. The first of which is that I got the pleasure of having a kidney stone. The second of which is that I was in disbelief to which we are completely ignorant about hitting the peak production of the non-renewable resource that has been powering our economy for the last century. Nouriel Roubini, called “Dr. Doom” by the New York Times, forecasted a housing bust and an oil shock in 2006. Well, I’m telling you that we haven’t even seen the oil shock. Sure, we had high prices, but they went away. Yes, I’m advocating preparation for something like oil supply being 10 million barrels a day less than what we have today in the next 5 years. I guess the price of oil could more than double from here, easy.
Redefining Inflation. Recently, I’ve questioned the theory in Economics that I’ve been taught which suggests that inflation is mostly proportional to the amount of money in circulation. In my opinion, money is a store of value, which basically enables you to purchase someone else’s personal effort/energy at a later date. If the cost of energy doubles, that dollar is going to go less far. Just something to think about. I have recently written about Buffett’s Burlington Northern purchase being savvy (http://www.thestreet.com/story/10637235/1/buffetts-burlington-bet-was-savvy.html). I’ve got news. As this plays out, he’s going to look like a genius. He’s got the moat of the cheapest transportation, and is in line with trade between the USA and China.
The Game Plan. Alright, so what have I been doing? Well, I believe that people will live in denial until they are forced to face the facts. So, the markets are likely to rise in the near term. That said, in real terms, we are way overpriced right now in terms of long term valuations. I’ve been loading up on CHEAP companies like Longwei Petroleum (LPIH), China Armco (CNAM), Lotus Pharmaceuticals (LTUS), and DJSP Enterprises (DJSP). It’s laughable how cheap these are right now. Also, I’ve been looking into stocks that I’ll be allocating into when oil goes up. So far, I’ve got Chesapeake Energy (CHK) and Gushan Environmental Energy (GU) at the top of my list of ideas to load up on. And then, I’ll probably try to allocate into S&P500 puts when the VIX finally decreases to a point where buying protection is cheap again. If you have ideas, I want you to send them to me.
Disclosure: Glen and his limited partners own Longwei, China Armco, Lotus Pharmaceuticals, and DJSP Enterprises.