Quick investment update.

Nothing has changed since my 50% PM, 30% Cash, and 20% equities, except that I neglected to mention that 8% of my equity portion is short. That is a big oversight on my part. As I have mentioned countless times, I hold short positions through options on SPY and the VIX. These are still profitable for me, but in some respects I wish I had closed them out a few weeks ago and re-established them today. I added to my SPY puts today.

So, in glaring contradiction to my prediction that the equity markets will tank to march lows and then rebound on inflation news [which I still hold], I have signed myself up for the Tesla IPO. We'll see what happens. I've done a number of IPOs, and most are losers. The only two big ones I've had have been Google and Visa, but there have been numerous others that have tanked (thankfully I go light on my asset allocation weighting for IPOs). I have a feeling Tesla will be the third big one. It appears oversubscribed since they raised the offer price to $17, from a prospectus range of $14 - $16 AND they added shares. That's usually a good sign.

A situation happened to me this weekend that caused me to think about how I express myself. I wanted to make sure readers do not think I'm some person assigning blame to any single party or any single person. I call it like I see it. Some people rush to judgment and assume I'm siding with one ideal or another. Nothing could be further from the truth. I pride myself on being different.

So, just for clarities sake, here is a brief and incomplete list of what I am for and against:

I am pro free market, pro USA, pro entrepreneurship, pro self-sustainability, pro self-responsibility, pro environment.

I am anti regulations-that-do-not-address-negative-externalities, anti capitalism-at-all-costs, anti entitlements, and in general anti partisanship.

I am not a Republican, I am not a Democrat, and I'm not, strictly speaking, a Libertarian (though I suppose I agree with most libertarian views, but there are a few that I'm really against).

I think, in general, political parties may do good in their infancy, but as they gain power, they then simply exist to keep that power. I don't like that one bit.

To sum up my outlook in a sentence:
I'm for sustainable economic growth with a governmental system that does not attempt to impose any sort of morality or 'population equity'.

Ok, I couldn't resist a quick follow-on update. I've been reviewing my investments and indicators tonight. Let's just say I wouldn't be surprised if our next temporary support level in SPY is 105-106. I never go out on a limb, but I guess I am now. We've hit the 106 level twice, and I expect us to hit it a third time and then head lower (whether it is a bounce or a straight drop, I don't know ...)

I've gotten a few emails asking if I've quit blogging. It quite clear I haven't been updating OSE as often as I used to. This is largely because I don't think I have much value to add right now. I've made my fundamental positions quite clear on a number of occasions.

I remain of the mindset that we will see a very large correction in the equity markets (my models show SPY taking out the march lows with a probability of 0.62) which will cause a temporary flight to treasuries. The first phase of this I think is underway right now. I continue to believe that due to the refusal of the US to reign in spending at both the state and government level, we'll see complete abandonment of US Treasuries and the US Dollar will lose its reserve status. My timeline for the start of this unraveling is approximately a year. Right now I'm sitting on 50% precious metals related securities (GC futures, JAG, GLD, UGL, DGL, SLV, PA futures), 30% cash, and yes, I do actually have 20% in equities, but they are in things I will never give up (GOOG, IMA, and sporadic trading in XTXI, VRNM, IMA options, SFL, and some small cap biotech). I'll probably regret holding any equities in the near term.

Should the political situation change in November, I may restate my forecast, but over the last 6 months I think I've held a pretty consistent view, and don't see it changing much.

What I fear most is that the leaders currently in power actually believe their rosy forecasts. It seems like Larry Summers, Tim Geithner, and Peter Orszag have had tunnel vision for the last year or so and refuse to consider the alternative: that the economy will actually get worse, not better.

Instead, they are advising the President that the stimulus worked, jobs are being created, and our economy is slowly recovering. These views are then supported by influential economists in the media such as Paul Krugman who rally public support and provide yet another artificial feedback mechanism where bad policies are reinforced through public support.

This is dangerous. In many ways, it is hard to fault Congress and Obama for going with the flow. After all, they are surrounded by people all telling the same story, and they all pick up the newspaper and see that Nobel prize winning economists agree with the President's cabinet and advisors. With all that agreement, it is really hard to think anything different could happen. However, our leaders are elected to question these things rather than go with the flow; in that respect, it is our duty as voters to find fault where it lies.

Some words to ponder from Henry Louis Mencken:

The trouble with fighting for human freedom is that one spends most of one's time defending scoundrels. For it is against scoundrels that oppressive laws are first aimed, and oppression must be stopped at the beginning if it is to be stopped at all.

Those two sentences are simply overflowing with truth. It is so easy to justify a law or a regulation by the terrible actions that it is intended to prevent. However, one must look at the larger picture to see that if we wish for people to have true freedom, we must give people the freedom to choose and do things that we ourselves would never do (though that does not mean one's chosen actions will go unpunished).

It is through the strict upholding of contract law and personal property rights that we can provide fundamental protection for the weak against those with power.

These people are doing good (and important) work regarding electronic privacy rights:
http://www.eff.org/

Short-selling has just been banned on 10 large German banks, and some kinds of credit default swaps (unsecuritized (unhedged) ones where the reference part is a eurozone member).

I'm surprised they went this route instead of dropping the Euro and returning to the Mark.

I'm sure glad I got rid of the 2 Bunds futures options I had. I have no idea what will happen tomorrow in German Bunds but it could be a big swing either way. Maybe there will be short-covering? Maybe there will be massive new shorts? I don't know, but I think it will be volatile.

If they had returned to the DM, even more people would flock to Bunds which would greatly drop the price of their debt, allow them to issue more debt both in quantity and absolute value due to a strong exchange rate versus the euro. THey would then be in a stable enough position to help countries out (though I would still argue against doing so).

This should be interesting.

Proponents of congressional earmarks correctly claim that the total cost is only 1% of running the government. This is true. However, there earmarks are still bad policy.

Earmarks adjust a politicians incentive to vote. Instead of voting his conscience guided by his constituents on the bill, he votes based on the incentive of the earmark. Now, sometimes that incentive may be financial great for his voters, but when there is an earmark for every politician, it can lead to some very bad policies being passed, and much fewer people having a say in the actual composition of a bill.

Imagine a small congressional committee that put together a bill as they see fit, and write in whatever earmarks are necessary to get the votes to pass it. How many of the politicians that are voting on the bill will actually even read the bill and know what they are passing? The main thing they are worried about is what the bill will immediately bring them in tangible benefits.

This can lead to much less back and forth arguing over the finer points of law and really thinking through the consequences of legislation. It leads to quick passage, less debate, and in general, more volumes of as it is crafted with more attention to language that will let is pass the vote rather than language that is best for the economy.

http://www.cbsnews.com/stories/2010/05/16/ap/business/main6489664.shtml

"GM's top North American executive Mark Reuss, under pressure to quickly sell more cars and boost GM's value as it gets ready to sell stock to the public, said a shortage of subprime lending is holding back sales in the U.S."

Really? Have we learned nothing?