One more sucker's rally.

So Obama announced the only guy it could be for treasury secretary, then the government bailed out Citi, which we knew it had to do, and the market goes up 14% on these surprises? We already knew this was going to happen, although we didn't know the government wouldn't stick it to the Citi bondholders and shareholders (this is why I didn't short or buy the stock). They could have at least had the deceny to wipe out the shareholders, but at least Paulson is stealing money from me for a good cause (rewarding wealthy shareholders such as a Saudi Prince with a bad '80s mustache).

I'm getting ready to head up to Dallas for the week for Thanksgiving. There will be a slew of new posts to come including my report from Moscow.

Ann Curry is on Kili right now

Apparently "The Today Show" sent Ann Curry to Tanzania to climb Mt. Kilimanjaro. "This is like climbing a Stairmaster for six hours a day with 20 pounds on your back," Curry said in a telephone interview from her tent following Saturday's climb. Yeah, that is pretty much what it was like.

Found a new venture capital firm for you guys to invest in (HUMOR)

Not sure if you've ever looking into owning venture capital firms, but this one is a can't miss opportunity for high gains with no taxes!

The next phase of the financial crisis is here.

This crises falls in phases, and the next one is starting today.

The next phase is commercial real estate blowing up and all the CMBS (mortgage-backed securities on commercial real estate) collapsing as people figure out that CMBS are worthless. Investment groups which own shopping malls are trying to hold on until after Christmas, but they may not even make it that far. You're about to see mall owners default on their debt.

Just like people got stupid in lending mortgage money to people with no jobs and no income, they did the same thing with commercial real estate by lending "pro forma" hoping that businesses will perform at a certain level in the future. Their not performing, and those loans won't get paid back as planned. We're not at a bottom -- we're at the beginning of the next phase.

Starting to get excited now (but not too excited).

All my life I've heard stories about the fantastic investment opportunities surrounding the mid-to-late 1970s market when we had an enormous recession followed by fantastic bargains. I had always wished I was around to see those unbelievable buying opportunities. I'm happy to say I will get my wish, as this market will prove to be even worse (and thus an even better buying opportunity) than that one.

Target is at a p/e of 8. Apple trades for 16 times earnings. If you consider all the cash and no debt it has, it is really trading at 11 times earnings. Of course earnings will likely decline so those ratios will likely get worse (which is why I'm not buying yet) but I am getting excited at the possibilities. Six more months or so, and then I'm likely to start buying.

The insanity I've been hiding from you.

So two weeks ago I ran into a fun investing idea that I didn't share with the blog because it is insane and because I don't want anyone to sue me. If you look at my CAPS list, you'll see that my latest pick was made on November 10 and is up 53% in the last eight days. That pick is a little something I call "the insanity index." I've written numerous times before about the 2x leveraged index funds (and inverse index funds) I love so much these days. But what I didn't mention was that just two weeks ago, a new series of indexes were created which track the market at 3x leverage.

Yes, I realize that is exactly what we don't need right now.

Anyway, you can short financials, large caps, small caps, or energy all at 3x. Doing so is, of course, very dangerous. Just a quick example of what can go wrong...I have a friend who theorizes that Paulson will announce next week that he is deploying the rest of the $350 billion bailout fund with the support of Pelosi and Reed. I'm not saying that is true...I'm saying that if something like that were to happen and the market were to rally 15% in a day, you'd be in a world of hurt if you owned something which shorted the market at 3x leverage!

With all of that said, this morning I took a 5% position in TZA. I still believe strongly that the S&P 500 will hit 600 points, and a 5% position is not crazy. It doesn't put me at risk if I'm wrong and this is a market bottom (which it isn't).

If you'd like to check out the list of newly released "insanity indexes" you can find them here. Please...proceed with extreme caution.

If you want to go long something...

...take my hero Nouriel Roubini's advice:

"I would buy stock in antidepressant firms."

Retailers

Retailers are finally declining in meaningful amounts, and our SCC position is doing well as a result. American Apparel was down 40% today, but the company I am most interested in is Macy's, which fell 7.6%. I was talking to a girl last week who works at one of the retail locations, and she claimed they are hiring just as many people and purchasing just as much inventory as last year. She claimed it was their strategy to be different from all the other stores that are cutting back because shoppers are going to want lots of help and a huge selection. This of course couldn't be more wrong. Shoppers want the biggest sales and lowest prices possible. And if Macy's has to compete with sales just as big and prices just as low while also purchasing enormous amounts of inventory and paying enormous amounts of seasonal employees, the stock should be a trainwreck in the spring when results are reported.

I'm not advocating a Macy's short as a position because I haven't done much to verify the scuttlebutt (I hate that we have to use such a ridiculous investing phrase!) although I spent three hours in a Macy's yesterday and learned that this particular location is indeed on a massive hiring spree and still has 30 seasonal slots it is trying to fill.

I'm more comfortable just shorting the entire retail index, which is what I did when I purchased SCC. I'm hoping the retailers will collapse by the end of the year on all the dramatic "Christmas isn't coming this year!" headlines, which would let me move money into shorting China before the world realizes that country will face a hard landing. We'll see how it plays out.

Berkshire Hathaway profits down 77%?

Some folks are wondering what I think about Warren Buffett's company, Berkshire Hathaway, seeing a 77% drop in earnings in the third quarter. The answer is simple; the company is just too big. It is a $175 billion company. It cannot change itself quickly and it does not desire to. This is why I do not think (and have not thought since my late teens) that Berkshire makes a great investment. I have never owned the stock of my hero, save for one instance where I could not secure credentials for the annual meeting any other way.

If Warren were running a $20 million fund, I would put 100% of my net worth in it and never look back. But today he has to try to place $40 billion ($50 billion minus $10 billion he wants to keep as float for potential disasters related to his super-catastrophe insurance) and there just isn't a lot out there that will give you 30% per year compounded on $50 billion.

This produces several ironies. One is that I will never own the stock of the man who has taught me everything because I consider it a poor investment. Another is that I will outperform Warren every year for the rest of his life even though he is far smarter than I could ever be and is a far greater investor than I will ever be. But I'm working with a much smaller stack of money. The more money you have, the more you can make, but only up to a point. After that point, money becomes a boat anchor slowing you down. This is where Berkshire has been for 15 years.

Warren has a personal investment account he uses to play around in outside of Berkshire. I estimate this account to be worth $400 million or so. I am quite confident that he will beat me in that personal account, although I think I will beat him for 2007, 2008, and 2009. It's a shame I'll never get to find out.

Congratulations (again) to Allied Capital shorts.

Those of you who still have your allied puts are having another big day today. The market is shocked to learn that maybe Allied can't continue to pay a 55% dividend yield after all. I love that something like that can surprise people. Efficient market theory? I think not.

Allied Capital is collapsing yet again -- down 38% on the morning so far. Folks who followed me into a series of Allied shorts are up around 400% or so in the last six months depending on which puts you bought and at which strike price. I wrote in a post one month ago that I was exiting most of my position after the 55% collapse due to my uncertainty over whether the government would come in, bail them out, and nullify my investment thesis. I thought the move was unlikely, but I was uncomfortable keeping such a large position in what amounted to a bet on the actions of a Congress in dire straights before an election. After the company's first collapse, my investment grew to represent roughly 95% of my net worth. I sold off most of that for obvious reasons, but I still believed in the investment and decided to keep my $15 puts that expire in January, 2009.

I now face a dilemma. This is where short-term trading gets you into trouble, because you want to pretend you know which way a stock (or the market) will move over the next two months when the truth is you do not. Ordinarily, this would be no decision at all -- you stick by your long-term thesis that the company will go to $0 per share and you remain in your investment. The problem is, the options expire a few days before inauguration day, and who knows what a lame-duck session of Congress will do.

I still feel it is unlikely that Congress will bail out Allied. The company isn't of much consequence. For this reason, I will continue to hold my options until either the company declares bankruptcy, is purchased by someone else, or my options expire in January. Whichever comes first will decide when I leave. I purchased these options for around $2 or so last year. They give me the right to sell Allied at $15 per share. As of this post, Allied has fallen to $4.40 per share, so my puts are already in-the-money by $10.60 per share. So far we're up around 400% or so, and this is one of the worst performers (I owned puts at $20, $15, 10$ and $7.50). It is a fantastic return, but to get there we had to buy them when the stock was trading at $35 per share, and we had to put up with all sorts of nonsense as the company continually lied to investors to send the stock up over the summer.

This is what strength in your convictions buys you. You can hold on when things take off in the opposite direction, knowing that you are correct in the long term. As Warren says, you are right because your facts and your reasoning are right -- not because other people agree with you!

On a related front, MBI continues to collapse. I had a similarly large short position in them going back to October, 2007. It had a similar performance to Allied, but with MBI - as I wrote on October 26 - I exited 100% of my position because I felt they had a much greater chance of being bailed out by the government. I still believe firmly that if the government does not bail them out they will fall to $0, and they are worth far less than that with their enormous debts.

For those of you who have followed me into SDS, EEV, EFU, etc, I hope a day like today can help you understand that having a proper long-term view and understanding the investment thesis will keep you from making emotional decisions which cause you to buy high and sell low. Over time, I am 99% positive I am correct on the emerging market collapse followed by a collapse of Europe, as Europe financed the emerging markets. We can have short-term rallies in the interim, but they mean nothing. Just like with Allied and MBIA, eventually the underlying fundamentals will win out.

The next thing to collapse in America

...will be our regional banks. One after another will blow up. There are indexes that track regional banks (such as XLF) which can be shorted by proxy, but I don't think it is worth it. Yes, the investment will do very well, but there are easier calls that will take bigger swings (like foreign markets) that are bigger and thus not as susceptible to government bailouts.

The funny thing about this is that it isn't the residential real estate that will get them...it will be commercial real estate that kills them off. That market is only just now rolling off the cliff. No one sees its impact on the regional banks coming. Commercial RE was always thought to be the safer play, but that is what will deliver the fatal blow.

You'd think we'd finally see how "too big to fail" is a bad thing...yet all we are doing is blowing up regional banks and consolidating all of our nations banking into just three or four "superbanks" like Bank of America and Citi.

The only way a smart man can go broke...

...is by borrowing money. So sayeth Warren Edward Buffett in a conversation he held with Charlie Rose. That conversation can be watched in its entirety for free on Charlie's site. I'm further behind than I thought with my links...this interview is from October 1. The information is still perteninet though. Especially as it reletates to borrowing money. I am absolutely sure of my investments shorting world markets, but had I taken on extraordinary leverage I would have been crushed by the short-term market rally we saw. It would have wiped me out. But by owning funds that are themselves short so that I don't need to short anything on my own, I am protected from this volatility because I'm not the one borrowing the money to short.

China's impending crash is still a big secret.

The fact that China will have a hard landing in 2009 rather than a soft one is still unknown to essentially every major economist and business journalist. For some reason, they can't seem to put collapsing commodities + the end of their customer base (America) together and calculate a severe recession in China. Frustrating? Yes, but also a selling opportunity. There is still a lot of money to be made by shorting emerging markets today and watching everything catch people by surprise over and over again for the next 14 months.

Retail sales starting to take a hit.

That purchase of SCC (which is essentially a short of the retailer index) is starting to work out nicely, unfortunately. The New York Times released a rather dramatic headline yesterday about how "Retailers Report a Sales Collapse." It's hard for me to understand how these things can always surprise the market, but I guess I shouldn't get too frustrated since that is what gives us our buying opportunities.

I still stand by my caterwauling over the S&P 500 at 600 points. It will happen. Earnings still claim to be almost $80 per share for the S&P 500. You will see that fall to $60. Keep the faith of your convictions, and don't let these little "suckers' rallies" as they are called instruct you rather than serve you.

Congratulations, President-Elect Obama.

It couldn't have come at a more necessary time.

Seriously. Start shorting things.

Apparently Citigroup just lost $1.4 billion on credit cards alone. And those write downs are just getting started.

Folks, that the stock market is going to fall in a big way over the next 12 months is a near certainty. There are only a few other times in my investing life where I've ever been so sure of something. It is true in America, but is especially true in the emerging markets where they don't have rich taxpayers. Once the emerging markets collapse, this will cause the EU to collapse, because the Europeans are the ones who financed the emerging markets. Once again, I'd recommend you just short all of them so you spread yourself around so you're not too vulnerable to excessive government bailouts.

Let's come back in one year and take a look at the value of these inverse funds:
SDS
EEV
EFU

I predict they will all have skyrocketed. I predict SDS will be up at least 60%, EEV will be up at least 100%, and EFU will be up around 75%.