“I will just play it by ear. If all goes according to plan, I’ll sell into major declines a bit at a time, and not try to hang onto everything until the end. Also, as things get rough, I may phase out of options and use futures more.

I do derive some measure of comfort from the circuit breakers at the exchanges and the OCC itself. Also, if we have the kind of grinding decline that we had after April 1930, there won’t be waterfall conditions again, though of course that is what wave 3 of 3 is supposed to be. EWI is calling for a new high in the VIX, after all.

Are you approaching this upcoming wave down similarly to the first, or are you treating it differently or acting with more caution?

As you look at long-term puts in the Financials, Nasdaq, S&P 500, etc. do you think counter-party risk one or two years out from now will be significantly greater than it was during the first wave down? If so, are you factoring that into your current plans, perhaps regarding how long you will be willing to hang onto your long-term puts or how much you are investing in them this time around?

Thanks

1. Mark Faber (yes, I know he is biased towards to inflation but you need to see this video):
http://moneynews.newsmax.com/streettalk/federal_reserve/2009/07/15/235992.html

2. Kenneth Volpert: Portfolio Manager of a $22 Billion TIPS Fund for the Vanguard Total Bond Market Index Fund:
http://www.thestreet.com/_yahoo/video/10532995/beat-inflation-with-corporate-bonds.html?cm_ven=YAHOOV&cm_cat=FREE&cm_ite=NA&s=1#28301734001

America’s Financial System is a Ponzi scheme and I am in awe over the fact that people do not get it … there is a limit to how long people will tolerate this .. no jobs, Gas at $5, Milk at $5 … it’s going to happen … you can just be blindingly positive (as the majority of politicaly correct psyche dictates) and expect things to be OK but you will have to face the facts at some point … There is simply no way this is a sustainable environment ….

After this global stock and commodity bounce collapses, people will have a much better understanding of the deflationary forces at work. But after some years of this, when almost everyone has accepted deflation as reality and expects more of the same, it will end. At the moment, very few still understand that deflation is more than a fleeting state due to the onset of the crash.

http://www.amanita.at/docs/open/newsletter-e.pdf

I have no faith left in this system run buy a bunch of egomaniacs and cheats … The American public has nothing but themsleves to be blamed … so, the hype is going to continue for sure for some more time … but we are fast appraoching the 6 month mark of this rally … not sure if parallels to the first beark market rally in the crash of 1929 will work or not but there is a possibility … imo, when there is no more SHORT Interest left out there (or very little) … the markets can tank .. and guess what … then people will start shorting in earnest because that is how it works in the opposite direction .. the same way people piled on hte LONG side in March … the same way there will be a massive buying of puts and shorting stocks … BUT WE HAVE NOT REACHED THERE YET …. Sentiment has to be absoultely POSITIVE …

“There is a battle being fought behind the scenes, a fight that could set the stage for a very, very big correction in stocks of banks and other financial services companies. During the first phase of economic crisis, the government leaned on the Financial Accounting Standards Board, or FASB as it is usually referred to, to suspend its mark-to-market valuation standards.

Instead of having to value the assets on their books based on something at least modestly resembling reality – reality being defined as what people might actually be willing to pay you for it – once mark-to-market was done away with, financial institutions were able to assign values to assets by the time-honored technique of licking a finger and poking it into the wind. If the wind, blowing from the mouths of management, determined that a certain value should be assessed, assessed it was.

The consequence of this change was that, presto, much of the capital challenges the financial institutions were struggling with just disappeared, and banks could trot out their freshly smudged balance sheets with a satisfied smirk.

That smirk could soon be slapped away if new proposals by the FASB to return to mark-to-market, and even extend it, are again accepted as required practice. If this were to occur, all the unloved and unwanted toxic garbage now masquerading as good capital would overnight go “poof,” leaving ashes in its place.

Quoting our own Olivier Garret, “If this happens, all of a sudden all the financial stocks that did so well in Q1 and Q2 will collapse again, and this time I do not think the Fed will be able to prevent it.”

Why would the FASB reverse itself on this issue? Simply, if accountants are to have any credibility at all – or serve any real purpose – they need to be true to their profession. Otherwise, why would anyone believe in the work they do? Continuing to look the other way while corporations cook the books would be akin to a society of professional home builders adopting a policy to leave out certain crucial support beams. After awhile, the ensuing carnage would discredit the profession entirely.

The FASB has a very powerful incentive to do an about-face on the mark-to-market rule change – a change that was entirely due to heavy political pressure at the time. And that incentive is the survival of their profession.

While this battle over accounting standards has been hugely underreported, Bloomberg did a good piece on it recently, which you can read by clicking here. Progress on the return of mark-to-market is something we’ll be keeping a close eye on, and suggest you do too. “”

I do believe that the dollar is leading the show right now, and everything else is reacting…

Here’s to Miller: He and his counterpart Bernie (Wong?) in Hong Kong are the best financial journalists on TV, hands down. And to think I had him pegged him as a cheerleader before the crash because he didn’t understand just how bad things were, and well, because I was biased against guys with tongue rings.