Some folks equate hospital food with diet food. Yeah, you lose weight on both, but that’s not always a good thing in the short run.
It’s been an… “interesting” holiday, folks.
On the one hand, it was lovely breaking bread with family and friends from distant quarters and climes.
Writers are generally solitary souls, prone to holing up for days, weeks, or as a favorite aunt pointedly pointed out, occasionally years at a stretch: “If you’re the big writer, so why don’t you write?”
At dinner, all the usual questions came up…
From a curmudgeonly uncle nursing a somewhat damaged retirement portfolio: “So, Mister Finance Guy, why didn’t you tell us this was coming?”
“I did Uncle, but no one believed me.”
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From a grandnephew enrolled at an Ivy League college: “Should I drop my Econ major?”
“Naah: By the time you graduate, most investors will have forgotten all about this and be ready for a whole new round of lunacy.”
From a spendthrift cousin: “What should we do now?”
“The same thing you should have done before: Pay down your ungodly credit card bills!”
And of course, the big one: “When will the pain end?”
A Rough Lesson
For the answer to that, I have to relate somewhat more painful events that overshadowed our spring break a touch.
In the middle of cocktails, we received the call that a dear friend was in the hospital with one of those rare diseases that you only hear about on television. The attack was quite sudden and took her right to death’s door. For several days and nights we took phone calls at all hours as to her prognosis of the moment. (I really came to dread the chime of the phone.)
I have always known that our friend was quite the fighter (she has already survived both her husband’s premature death and her own bout with cancer), and much to her doctors’ surprise, she has survived the critical first few days.
Back From the Brink
However, we have been warned not to put but so much weight on this, as the damage already done is quite severe. Now that she has pulled back from the immediate brink, she must survive several rounds of surgery. And then, if she is really lucky, she can begin months, if not years, of rehabilitation.
After much thought, I have come to the conclusion that our friend’s and the economy’s situations are somewhat congruent.
Both had previous conditions that set them up for this unwelcome, but perhaps inevitable “surprise.” My friend’s previous bout of cancer had depleted her reserves in much the same fashion as our indifference to – indeed positively obsessive passion for – debt, both national and personal, which brought us to and tipped us over the slippery slope into the deepest recession in recent memory.
Losing a Limb May Be Necessary, but It Ain’t Fun
Now that we have all been laid low, all we want to know is: “When will we be well?”
In both circumstances, we hope and pray for the best. But I must tell you that in both circumstances, we are not necessarily out of the woods yet. And even then, true recovery is still a long way off.
Last week, I wrote as to how a reversal in unemployment would not necessarily gibe with a turnaround in the economy. I pointed out that eventually, these lost jobs would equate to leaner, more profitable corporate operations, and eventually corporate profits. Several readers wrote in asking if this meant that high unemployment by and of itself implied a recovery.
That’s sort of like equating hospital food to Jenny Craig. Yeah, you lose weight on both, but that’s not always good thing in the short run.
An Honest Assessment…
Just yesterday, we were told by the Federal Reserve that the national output of factories, mines and utilities fell 1.5% in March, this in spite of ever so slightly higher production of motor vehicles. Indeed, since the recession began back in December of 2007, industrial production has declined some 13.3%, taking us to a level on par with 1998. To give you a sense of scale, this has been the largest such decline since we closed down the tank and bomber factories at the end of World War II.
With numbers like that, you can pretty much assume that the only folks that will be reporting profits for the recent quarter will be miracle workers or liars. And quite frankly, while miracles are always welcome, it doesn’t pay to plan for them.
We have a great deal of work to do before we even begin to recover. Most honest observers are looking for a genuine economic turnaround to commence in 2010 – at best! In the meantime, you can expect a (very) bumpy road.
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And a Bridge to Future Gains
Now that doesn’t mean that you should run and hide until then. Indeed, now is the time to begin looking to build your bridges to the new bull market. A careful mix of short-term puts and long-term calls is your best bet at the moment.
Long-term LEAPS on such stalwarts as Mittal Acelor (MT:NYSE) and Chevron (CVX:NYSE) are available dirt-cheap right now. Their deltas enable them to double in value when these companies’ shares gain mere dollars.
Risk can be ameliorated through puts on such potential losers as the banks (shares of the bearish 3x bank fund Justice has mentioned of late would suffice just as well, as they are based on puts), retailers like the Gap (GAP:NYSE), and even such industrial players as Boeing (BA:NYSE) can be used to balance off any losses you incur, allowing you to remain in your long plays throughout the rough days that are bound to lurking ahead.
In the end, with some realism, diligence and hard work, I hope for, and indeed plan for, the best for all: friends, family, health and wealth.
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