Don't shoot the messenger: the Dow might be in real trouble. The Hindenburg Omen has officially been confirmed, and the blind mathematician behind the theory has exited the market entirely, for what that's worth. Friday's market close was a successful confirmation of the Hindenburg Omen that was tripped for the first time a week earlier during the Thursday session.
“I’m taking it seriously and I’m fully out of the market now,” Miekka, a blind mathematician, said in a telephone interview from his home in Surry, Maine. “I would’ve probably stayed in until the beginning of September,” depending on how the indicators varied. “That was my basic plan, until the Hindenburg came along.”
Now analysts are calling for the Dow to face a choppy decline to 5,000 and claim that the U.S. is in a full-blown 1930's-style depression, and not just a recession. The good news is that the decline will come with many significant upward spikes - if you can catch them. Anyone remember when Peter Schiff famously called for the Dow to come to parity with Gold at 5,000? It was one year ago today.
Some of you probably think I'm a doom-and-gloomer because I report stuff like this and the vast majority of the trades I've done over the past two years for the benefit of WSO have been some combination of long gold/short the market. I promise you I'm not a doom-and-gloomer. I simply analyze valuations and make bets accordingly.
As a country, we had an opportunity to take some bitter medicine and right the ship of our economy. We chose (or, rather, Congress chose on our behalf and against the will of the people) to forgo the pain by enacting a stimulus plan identical to the one that has failed Japan for two decades. That stimulus addressed none of the underlying problems which led to the crisis, and only succeeded in inflating stock prices by over 70% at one point.
So it's not doom and gloom to bet against an obvious farce. In fact, it's financially irresponsible to do otherwise. Does that make me a pessimist? Certainly not. I'm optimistic that stocks will soon have the opportunity to reflect their true value. Because only when things have bottomed out can we rebuild a solid foundation.
It may (and most likely will) take decades. And that's something the majority of our instant gratification society hates to even contemplate. But we didn't get here overnight. It took decades of financial mismanagement, Keynesian folly, and government corruption. It won't be fixed overnight, either.
The smartest thing you can do is hope for the best but prepare for the worst. Look on the bright side: it has never in the history of the markets been easier to take a short position. It no longer requires borrowing stock on margin, waiting for upticks, working against anti-short selling regulations, or any of the other barriers that existed before's exploded on the scene.
Now you can just buy a short ETF like you would any other stock. Or you can even play the options to get 100:1 leverage with a limited downside and no margin interest. There may be a psychological barrier to you making a short play, but there are no longer any market barriers to doing it.
This might sound like gloating because my DXD 25 calls finally paid off (handsomely, I might add). But the fact is, I wish I had more. LOTS more. I'm just waiting for a strong up day in the market to layer back into the trade. Here's hoping the bulls are foolish enough to give it to me.