The Careful Gambler

March 2,2009
The Big Chill

Hearing the news today that the average 401K plan has lost 25% just since the presidential election on November 4th, I could no longer take this torturous stock market and decided to call my old wise friend, Careful Gambler. I just HAD to know…are we at the bottom? Or were the conspiracy guys right and our economy is indeed on the verge of a breathtaking one-of-a-kind collapse and the birthing of the New World Order is now upon us? Or are we equally worse off and at the onset of Marxist style socialism …heaven forbid!…could Hannity and Rush be correct about this wealth distribution stuff? Or was this just a Texas sized parting joke that Bush and Cheney dreamed up on one of their last boozed up hunting and fishing trips… a smoke’em out banking mess tribute to the liberals? Or maybe, just maybe, despite the smooth talk, bold new ideas and seeming political prowess, our new ambitious president simply is showing his lack of experience as McCain and other seasoned, gray haired guys had stated all along? Similarly, maybe the investment community had figured that our modern day Mr. Lincoln wannabe simply had everyone fooled and “knows nothing” and his “stimulus plan was crap” as Cramer put it. As these thoughts swirled about in my head, I recalled with some distant sense of calm my summer conversations with Gambler and how he was able to somehow put it all into perspective for me. Even back then with gas prices over $4 per gallon, after talking to him I felt as though the sun would still come up again…and it did… as I celebrated my last night out with the family on my summer vacation. So I punched in the crumpled number from my wallet stuffed among my loose bills and worthless gas receipts…and waited for him to pick up.

The dial tone seemed to ring endlessly….and it made me wonder…was he OK? Was he even alive? had I said something to upset him and was he, after seeing the number on his cell phone no longer interested in talking? After all it seems with all of the bailouts and now the whopper 3.5 trillion budget on the table that almost everyone is on edge and have taken some sort of extreme political position to justify the candidate they voted for. It’s hard to know who your “family” and friends are any more. On and on the dial tone continued to ring and I was about to hang up when I heard that familiar voice.

“H….Hell….Hello” the voice responded a bit out of breath.
“Gambler…thank God you’re there…I had…”
He interrupted, “oh it’s you, my friend, have I got news for you”. It was as if Gambler had been anxiously waiting for the call.
“News?”, I asked, thinking he had some good market advice (capitulation…time to go all in, perhaps?) .
“Yeah boy, did we get a helluva a snow fall here.”
“Where are you?”, I asked.
“I’m up in the Dacks…you know Adirondacks, north of NYC…doing a little skiing. After all the resorts up here are not doing so hot this season and no wonder. All of that mess down there on Wall Street is finally hitting the brokers and bankers where it hurts – in their vacation budgets - and I got this great ski package deal from a former AIG marketing manager that was afraid of the government oversight thing. I’ve never skied so much at once in my whole life and the slopes are wide open! Actually I’m glad you called, I need to take a hot chocolate bourbon break…hold on”. I could hear Gambler trapsing through the snow back to the chalet and finally he was settled in with his hot chocolate whiskey concoction.
“Man it is great here…blue sky and brisk…it doesn’t get much better than this.”
“I’m sure it doesn’t Gambler”, I responded and continued, “But have you watched the news lately?
“You mean this record late season snowfall or the BIG CHILL in the market over the last 3 weeks?”, he asked.
“I mean the market man, it’s terrible!”. And then I went on to probe CG to see which scenario - the coming New World Order, Marxism, inexperience, or a Bush surprise - was at the heart of the problem.
“You’re a good student, son…all of the above”, he said with a snicker… ”Absolutely…you’re right-on about all of ‘em…. but that doesn’t matter now”.
I could hear the clinging of bar glasses in the background amid that all too familiar silence from Gambler as he allowed me to contemplate what he had just said. Even so, I was still kind of stunned at the reply and hesitatingly asked to hear more.
”Please explain, Gambler”.
He went on…”Eventually you’ll be right about them all, the world is going to hell in a hand basket of course, everyone can see that…but that is not what matters to survive this market. Actually you’ll be happy to know that I am proud of your discernment, but don’t get too hung up on the big theories, just look at the charts and remember this one from the history books.
“Remember what?” I asked
“Bear markets are much steeper and quicker than bull markets. Actually they’re about 7 times more compressed”, he said.
“So……?” anticipating Gambler would further explain.
“So you can make money 7 times as fast…you know inverse ETFs!”
“Yes of course” I responded, “but how do you know when to sell?”
“Sell? Sell whenever you’re up on them and need some cash…how do you think I bought this ski vacation?…hell it’s just paper money…it has no real value…but you didn’t dump your gold and silver in this last drop did you?”
“Just a bit to trade, nothing substantial”, I said. “When it got to 1000 I couldn’t help to think that the traders would think we were getting a double top, so I played it that way with a small portion of my position. It was one of my first lessons from you in 2003 never to short gold and silver when the government is creating money at multiples above the GDP, remember?”
He seemed genuinely proud…“Nice play, boy”, Gambler exclaimed. “But don’t wait too long to buy back in…you always want to stay rather fully invested in real money. Please promise me you’ll only trade in and out of gold quickly for sport only. Don’t ever be a fool and miss the scope of this metals move. Man, it’s generational in size. Please don’t forget that. You know even when all your theories eventually do pan out, and the government austerity takes hold, it still won’t matter because you have something of real value in your metals.”
In spite of his gleeful vacation spirit and taking pride of his student’s recent trade, he seemed to make the point sternly.
“Got it Gambler!”, I responded.
“Good. You OK now?”, he asked.
“I am…thanks again”.
“Listen I want to take one more run down the black diamond before I call it quits today”
We exchanged a few more pleasantries before ending our conversation.

I was so relieved that CG had once again realigned my thinking. What he told me, as always I knew, but was afraid to allow my knowledge to rule over my emotions. With all of the put trading tools out there, cash paying close to zero, bonds at all time high levels and certain to go negative once the flight into dollars recedes, how could I have overlooked such a obvious play?