We’ve Recouped Much of Last Year’s Loss. Can We Hold On?

Even though J Taylor’s Gold, Energy & Tech Stocks newsletter model portfolio lost about half of its value in the devastating markets of last year, it was well ahead of the S&P 500 Index. We have regained over 60 percent back this year to mark a gain of about 2 ½ times our investment in 2000. The S&P is setting at about a 25 percent loss over the same period. We hope we can keep most of the gains we have made this year so far.

Our main concern is that we are due for at least a modest decline. For many reasons, some of which are expressed by Ian Gordon and others below, we think that that the next leg down is likely to be at least as bad and very likely much worse than what took our portfolio from $3,200 to $1,500 last fall. That is why we have been insisting week after week that you use the B wave up to build cash and get out of debt as much as possible.

I can tell you that my personal IRA at the start of trading on Friday, November 13 had 15.77% in bear funds (BEARX and SDS), 43.21% in gold and gold shares, and 28.57% in cash. At the end of the day, I took approximately 5% more away from cash and purchased more SDS. In speaking with Ian Gordon on Friday, I am considering buying a double down short against the financials, such as the Pro Shares Ultra Short Financials (SKF) shown in the chart above. 

Why are the banks most vulnerable? Well, if you buy the idea that debt has to be written off our books, then it’s the financials that are going to have to be hit the hardest, because they are the most over indebted institutions in the world! They are the reason we are in such big trouble. Of course, we think the Fed is the real culprit, because the Fed pumped the banks full of cash. Bankers simply did what they had to do to optimize profits, given the huge amount of reserves they had flushed into their system.

One cautionary note with respect to buying derivative instruments like SDS or SKF: As Dr. McHugh noted, when/if we get what he calls “a cataclysmic nation changing event,” even though you may be on the right side of the markets, bankruptcies will be so massive that you may not get paid on your bet. McHugh thinks and Ian Gordon agrees that you can use these instruments to short the market early on. But at some point, you are going to want to take your profits and run for gold or silver or perhaps Treasuries. Otherwise you may come up empty, even though you had the direction of the markets right.

You may think that my views are crazy talk after seeing the market uptrend so far today, and maybe they are. Remember that one day a market does not make. I hope I am wrong, but the fundamentals of our every increasing immense dept load, led me to think I cannot be totally out of my mind.

Jay Taylor
Gold Investor