Your editor’s head is full this morning. We arrived at our Fitzroy Street office at 8.30am. But we didn’t type our first words until around 11am.

The thoughts in the Sayce brain are all trying to come out at the same time. And none of it is making any sense [Reader's voice: No change there then!] So you’ll have to excuse today’s effort as it’s likely to be all over the place…

Wall Street crashes by 350 points. The Australian market is down over 10% in less than a month. And Australia’s single most important industry – resources – is being held hostage by the government.

Meanwhile, we read on from News Ltd that:

“Another $2bn for health in federal budget”

Oh the fools.

It’s all the deadbeat politicians know how to do – “The economy is booming, it’s time to spend…” “The economy is collapsing, it’s time to spend…”

But what do they care? While the ex-Fairy Ruddfather cheerily set off a resources market crash, and increased the flight from the Aussie dollar, he’s happily aware that whatever happens to the stock market he’ll still get his lovely taxpayer funded pension.

Ah, the life of a parasite. The life of a bloodsucker. The life of a stinking coercive servant.

Taking away by force money from the private sector and individuals in order to fund the playthings of politicians.

Let me make this clear, the mistakes of the Great Depression that the bureaucrats claim they have avoided, are in fact being repeated.

Only on a much bigger scale.

One day the penny might drop for these chumps. It might suddenly occur to them that you can’t consistently take money away from that which is productive and pour it endlessly into that which isn’t productive.

To take money away from the productive resources sector and hand it over to the unproductive and corrupt health sector is nothing more than an expensive guilt trip.

We can hear the spin already, “It’s only right that these super profitable mining companies should pay for hospitals. Which would you prefer, shareholders making money or lives being saved?”

Ah, a political stroke of genius.

That reader, will be the argument. And it’s a disgraceful and false argument. Spineless bureaucrats playing with the emotions of the population. Blackmailing them into handing over 20%, 30% or even 50% of their money in exchange for services they may never use.

Taking your hard-earned money when you need it the most.

But it’s not just the government, it’s the special interest groups as well. The doctors and nurses organisations that blackmail you and politicians into securing ever greater amounts of taxpayer money.

The trade unions cheering the government on to take more and more dollars from those that have earned it.

All of it under the lie that it’s being done to boost the economy and support a recovery.

As I’ve mentioned many times before, there is no economic recovery. All there is is spending of borrowed and newly printed money.

Spending which is only pushing the taxpayer further into debt.

We read yesterday that Dun & Bradstreet was forecasting thousands of people would default on utilities bills.

“Bill debt set to soar: report” says the Sydney Morning Herald.

D&B chief executive Christine Christian told the paper:

“Not paying a small bill or a non-bank related credit obligation can negatively impact a consumer’s ability to access credit for up to five years so it’s absolutely critical that every credit commitment is taken seriously.”

Alternatively the best course of action is to default on your bills. For five years you’ll find it almost impossible to go deeper into debt. Surely that’s a good thing.

We’ve encouraged the Greek government to do the honourable thing and default on its debts, rather than putting its citizens and the citizens of other nations on the hook for $150 billion.

So why shouldn’t individuals do the same thing? Default and get a bad credit rating. Imagine having to save up for something rather than applying for a loan.

Imagine having to stay in your current home rather than “upgrading” to something more expensive. In our mind that should be seen as a liberating event. Default and be free of the temptations of going further into debt.

Of course the banks won’t like that. They need more debt. The more debt the better. The bigger your debt, the bigger the bank’s assets. Bizarre isn’t it?

What’s bad for your balance sheet is good for the bank’s balance sheet. No wonder they’re so eager for you to hock yourself up to the eyeballs.

But whether – as reported – the overnight crash on Wall Street was the result of a trader error or not is irrelevant. The fact is, the market has been living on borrowed time for at least the last six months.

Stock markets and economies have been propped up by exactly the same kind of wasteful spending as the $2 billion that the government will waste on the health system.

Billions of dollars wasted on school buildings, housing insulation and home buyer bribes. Billions of dollars more to be wasted on a broadband network. Although the spin on that is that it will be a saving because it will only cost $38 billion not $43 billion!

It’s why, when the mainstream has been cheerleading for the market to go higher, we’ve been more cautious. We’ve advised Australian Small-Cap Investigator and Australian Wealth Gameplan members to make sure they’ve got a ‘Plan B’.

For Australian Wealth Gameplan members that’s involved picking a small selection of dividend paying stocks. It’s also involved using trailing stop orders. Plus we’ve recommended using covered call options as an income booster.

And finally we recommended members implement our “Exit the Dragon” strategy. You may have seen the email from Dan Denning last week.

We formed that strategy earlier this year. And while it wasn’t specifically tailored for this week’s events, it’s already paying off.

For Australian Small-Cap Investigator subscribers, the strategy was different. Last October we strongly encouraged subscribers to start using a trailing stop strategy.

The thinking was simple. Stocks had risen 50% in a very short period. That kind of price move wasn’t sustainable.

Yet, we didn’t want to completely exit the market. When you’re betting on small-cap stocks you know there’s a risk. That’s why we took some profits but then entered trailing stop orders on the remaining positions.

The result has been that over the last six months the number of stocks in the Australian Small-Cap Investigator portfolio has shrunk from twenty-nine to just three!

It means that we’ve instructed investors to get out of nearly 90% of their stock positions prior to the market collapse.

The point I’m trying to make here is that it’s pretty darn hard to pick the top and bottom of the market. Therefore your best strategy is to prepare for the worst should it happen. And that’s exactly what we’ve told readers to do since October last year.

Look, I’m not saying we’ve gotten everything right because we haven’t. And I’m not trying to claim ‘I told you so.’ But what I am saying is that the time to prepare for this week’s market crash wasn’t Monday, yesterday or today. The time to prepare for it was six months ago.

So right now, while the mainstream finance pros are falling over themselves to get out of the market, we’re looking for opportunities to get back in. But we won’t be rushed.

Again, we may not pick it completely right. Because if we get back in too early there’s a chance we’ll be forced out of a position if the stock moves lower.

But, that’s just part of the risk of punting on small caps. We’re looking to lock in big figure percentage gains. The only way you can do that is to take big risks.

However, there are some making big money on this market. Such as short sellers.

Our Slipstream Trader Murray Dawes has been short a number of stocks over the last few weeks. And this week it has paid off in a big, big way.

I can’t give you the details of what they are because he’s still got some of the trades open.

But for our part, we hope you took the opportunity to short sell Commonwealth Bank as a punt when we suggested it in early April. From memory the stock price was about $58. Today it’s trading just above $53.

It would have been a nice little punt if you got on board. An even better one would have been ANZ Bank which is down about 20% in the same period. Quite frankly we can’t believe the banks are still this expensive.

There are afterall, insolvent Ponzi schemes.

I’ll tell you what though, if you’re relying on signals from your broker or the mainstream press, then forget it.

Today’s The Age offers:

“Cash best bet as markets shudder: traders”

Maybe these traders have been saying that. But we don’t remember the mainstream press reporting it.

All we remember is the hype about the market hitting 5,000 points and how analysts had upgraded their forecasts for the economy.

And how rising interest rates was a good sign because it means strong economic growth.

No you Muppets, it means that the stimulus and government spending and buying on credit has given a false impression of a positive economy.

It’s exactly as we’ve said all along. If the government spends and if the public spends on borrowed money, eventually it all has to be paid back.

It’s just not possible to borrow and spend your way out of recession without creating bigger problems.

But where are the Keynesians now? Supposedly their spending plan was working. This is the way out of recession they said. Stoke the demand side and everything will be fine.

Gee whizz, the Greeks tried that, ask them how it’s working for them.

The UK tried it, ask them. The US tried it too. And, Australia tried it as well.

Oh, and don’t forget the biggest spending bubble of all, China.

The outcome will be exactly the same. Australia isn’t any different to anyone else. This week has proven that beyond doubt.

And regardless of the number of levers the bureaucrats think they have to manipulate the economy, one unarguable fact remains…

You can’t buck the market. Keynesians and bureaucrats would do well to remember that.

Cheers,
Kris.