The BarkerLetter

January 16, 2009
 
Greetings folks.
 
We’re taking profits on a November pick called Tirex Resources Ltd. (TXX.TSX-V), which is up $0.16 Cdn today.  Please see Cash is King for details. This rally will probably burble along after a dip on Monday, so take some money off the table now or then and clock your 80% gain.
 
Details to follow…
 
Kb

This is fundamentally sound. The Great Depression probably went on for as long as it did because of the very two words we used to describe it. The stock market recovered by 1933; however, the depression dragged on for 10 years. When FDR said the people had nothing to fear but fear itself, I think he was essentially correct.

This time around we’re going to see the New Deal applied again. Liquidity for the banks, and lots of large public works. The critics of current fiscal policy call this a stop gap solution and I think that’s precisely what it is intended to be. Something to tide everyone over until we can repair or replace the economy. A French philosopher once said that no single problem can withstand sustained public interest. I think that is true unless the public believes there is no solution.

That’s where I part company with the critics. As long as they keep harping on the problem, the solution will elude us. Moreover, I can’t find fault with the current economic system for the simple reason that it has worked for 30 odd years. That’s pretty good, actually. How long is an economic system or philosophy supposed to last anyway? Ten years? A hundred? No system works forever. It goes against nature, it’s counter evolutionary.

For example, if you took all the wise guys out there who have been harping about the foolihardiness of the tax and spend and deficit policies of the last few decades, and charged them with finding another fiscal policy to replace the one we have, and they succeeded in doing that, I can guarantee you that it  won’t last. It may work for awhile, it may create prosperity, but its trajectory will eventually end and it will crash. Nobody - and I mean nobody - will dispute that. Everyone gets proven wrong eventually, even Einstein.

In fact, I happen to know that the world’s bankers are even now beavering away on a methodology for restoring what is essentially a bankrupt Western World. I think they will arrive at a solution which reforms the fiat currency system by standardizing the rates of exchange. Also, I think capitalism is in for a drubbing. There will be more rules to restrict the means and scale of speculation in the financial markets. I’d go as far as to say we could have a new era of global socialism. We won’t call it that, of course. But the state is going to be far more involved in the free market than we’re used to.

There is only really one question for the investor: What is the smart money going to do? There are two cardinal rules about the smart money. One, you never know where the smart money is positioned until they’ve liquidated and fled. That’s because the smart money only goes into vehicles which are non transparent. We find out about it afterwards. Like credit swaps, which amounted to nothing more than a $45 trillion short on banks and corporate debt. Who knew about that? Nobody. There was no transparency in that market until recently, and even now it’s pretty opaque. I’ve heard the brokerages explain that $45 trillion away by saying the premiums were cheap, and that’s what encouraged speculation. Ok, but $45 trillion? C’mon guys. It looks more to me like somebody with a lot of money had a real good idea a few years ago of where things were heading.

Oh yeah, rule number two about the smart money: It never gambles. The smart money only goes into a sure thing. Zero risk. Which means the smart money is at the top of the food chain: Government, industry, banks. The smart money never second guesses the market because it makes the market. So given these two rules, what chance does an investor have of figuring out where the smart money is going? Good question.

Did I say there were two rules about the smart money? I lied. There are actually seven:

The smart money makes money going up, and going down. It always knows where the top is.

The smart money does not invest in yesterday’s ’sure thing’. Backward Ho! is not their rallying cry. Having created the bank/commodities bubble and burst, they’ll look around for something new. The smart money does not buy the flavour of the week. It is the flavour of the week.

The smart money always buys cheap. If you got out of the market with a ton of money in ‘08, wouldn’t you want to get positioned in something really, really cheap?

The smart money thinks big. It’s very interested in essential industries, like power utilities. There’s nothing quite as reassuring as having 35 million people pay you $45 per month because they have to.

The smart money is patient. A couple of years, or maybe three, is what it takes to get truly positioned.

The smart money is never idle. Shakespeare wrote: “Foul cankering rust the hidden treasure frets. But gold that’s put to use more gold begets.”

So we’re back at my original question: What is the next Big Thing?

More about that later.