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What to Do When It’s Time to Sell Everything

20 | By Shah Gilani

My Jan. 29 column, It’s Not Time to Sell Everything – Yet,” generated a lot of questions.

I’m answering most of them here – and also letting you know exactly what I’m going to do myself.

As to the timing of a possible crash and depression, that’s the bazillion-dollar question.

I don’t have the bazillion-dollar answer yet, but here’s the start of my plan…

How We’re Getting There

Markets last week, especially U.S. markets, got down to “support” levels and dutifully bounced in an orgy of lusting futures and Viagra-fueled excitement.

Higher oil led the charge.

That’s worrisome. Oil may not have found a bottom. Falling 60% and then bouncing close to 20%, without any consolidation or a capitulation bottom, isn’t a sure sign of anything.

A lot more buyers went “long” (bought) oil looking for a bottom than there were long futures holders selling on the way down.

If oil did put in a bottom and we hold between, say, $45 and $50 (based on the West Texas Intermediate spot price) on the downside, that’s good. However, if we break below $43, then break $40, and look like $30 is a possibility, all hell will break loose.

All those new buyers loading up on oil, oil stocks, drillers and explorers will dump their new bets like they were ticking bombs. In the process, all the longs who held on all the way down, because they were in a state of disbelief, will freak and sell, sell, sell.

That would make a crash self-fulfilling.

That could cause a stock-market sell-off – a panic. Why? Because investors were very nervous when we got down to support. When oil looked better, they all jumped back in.

All those new players will jump out if the oil higher it-feels-better sentiment turns to an “OMG, we were wrong” psychology. Then, if we get to support again, the same support that just held, and that gets broken, look out below. Margin calls will start rolling in.

Stocks are moving right up to resistance – we’re almost there. If stocks can’t break out above resistance levels and make new highs but slip this coming week, that’s not good.

As far as timing, I’m first and foremost watching oil and how stocks react to oil price movements.

At the same time I’m watching Europe. European stock markets better bounce, and European sovereign bonds better not weaken.

Interest rates rising, for any reason, will be the canary in the coal mine in Europe. With Europe’s new quantitative-easing program in place, neither of those two things should happen.

However, if something breaks in Europe, that’s another potential market killer. Watch Europe like a hawk.

I’m watching the U.S. dollar. The U.S. Federal Reserve could ratchet up expectations for an interest-rate hike, which would cause the dollar to rise further against all other currencies. At the same time, a lot of other countries are trying to devalue their currencies to make their not-so-robust exports more “competitive.”

The problem there is that emerging markets have $5.7 trillion of dollar-denominated debts.

That means they borrowed in dollars and have to convert their home currencies to pay interest and principal in dollars. Their falling currencies against the dollar could trigger defaults. If that happens, the rush out of emerging markets will make 1998 look like a day at the beach. Watch for foreign borrower defaults.

Last, but not least, by a long shot, there’s China. How about the Shanghai Composite‘s one-year gain of 51.29%, as every indicator in China shows the economy is slowing.

Does that make sense?

The People’s Bank of China (PBC) just had to lower reserve requirements for banks. Do you get that? As the world is trying to make banks safer by making them raise reserves, the PBC is telling its banks to reserve less. Why? Because they are facing a credit crisis. If it turns full-blown, it will make the U.S.-led credit crisis of 2008 look like a warm-up act.

All these hot spots are where I’m looking for timing cues. If we get past all them, that’s good, for a while. But only for a while. Unless all the structural problems underlying all these hot spots get fixed – and they won’t – the water just gets hotter.

And as the water gets hotter, here’s what I’m doing – and what I think you all should be doing.

Cash Will Be King

To position for the possibility of a market crash, first and foremost, I always have my money – whether it’s cash, investment holdings or trading accounts – in the biggest institutions I can find.

The too-big-to-fail financial institutions might fail, but we should be able to get our money out of them because they will be propped up by the government. They have to be. They always will be.

Otherwise, nothing matters.

What if the government fails to hold them up? If that becomes the case, all those survivalists we sometimes laugh at, well, we’ll be running to them for our own survival.

If the giant institutions where you park your money start getting in trouble, you’ll see it in their stock prices. Get your money out if you see that happening.

I always have stops ready for all my positions. That includes bond, fixed-income positions.

Right now, I don’t own any real estate. I play real estate with real estate investment trusts (REITs).

I raise my stops every time the market makes new highs. My stops (unless they’re my trading account positions) aren’t close to current prices. I don’t want to get stopped out in a rising market. But I want out if things start falling. I can always get back in.

Someone commented, “Isn’t selling everything adding to the problem?” Yes it is. However, if you don’t get out before everybody else sells, you will be the biggest loser.

I own some gold. The real stuff. Not a lot, just enough to have something solid, something that might become more valuable, or something I can use for barter if we ever get into a financial shutdown, cool-down period.

Cash is king in a crisis. And the best cash in the world is U.S. dollars. Period. I’d stick mine in a safe spot. No, I’m not telling you where.

Why sell everything? Why keep U.S. dollars?

Because when the dust settles, and it will settle, if we get the big one, and we time it right (I’m here with you) and go to cash when everything falls, buying in at the right time will guarantee (and you NEVER hear me say that word) us spectacular gains in a matter of a few years as the world heals.

One last thing, if you have your trading accounts at big, safe institutions, you can short along with me.

Because selling everything is one thing, shorting everything else is something altogether more rewarding.

Any more questions?

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20 Responses to What to Do When It’s Time to Sell Everything

  1. Ray Lynn says:

    It is said that SH is not a buy-and-hold investment. Can I buy it and hold it through this uncertain period? Say a year?

  2. dina says:

    Shah,

    when you go to dollars do you go to UUP,
    or is cash in a brokerage account ok ?
    please reply ASAP
    thanks, dina

  3. Allan Empey says:

    if you have your trading accounts at big, safe institutions?

    I am looking to open a trading account. I am in Canada.

    What big, safe institutions would you recommend?

  4. Louis Pereira says:

    Hi Shah,

    Interesting to know that you are of the opinion that the U.S dollar “is the best cash in world.”

    Harry Dent shares your opinion. However, there are those who think that the U.S. dollar will crash. They argue that there is too much debt outstanding — municipal debt, city debt, state debt, national debt, shortfall in Social Security. Medicare and Medicaid. Some even argue that the amount of derivatives (toxic) far outpaces the levels of 2008.

    • Renee Lorenz says:

      There are also those that think the U.S. will loose it’s reserve currency status. They state that many countries, especially China, are already heading in that direction because of how much $ we owe them & the instability of our
      economy. These countries are already trading in other denominations, or ways, agreed upon amongst themselves. I can’t remember which of the trading publications I read this in but it does make sense. I suppose that we would go to war before we’d let that happen, but what happens if we don’t win? The real reason(s) for wars are often complex. I’m getting off the topic
      with that statement but I would love to know what goes on between the “powers that be”. And that is certainly not you or I.

  5. mandy says:

    Just a big Thank you Shah, for the simplest, informative, easy to understand information of what everyone must be aware of to save “what little one has”.
    Never giving meaningless advise,or sugar coating what you think is going to happen. Please keep us informed, there seems so little time…Mandy

  6. Frank says:

    “…the best cash in the world is U.S. dollars. Period. I’d stick mine in a safe spot. No, I’m not telling you where.”

    Why not? Are you doing something illegal with it?

    One of the reasons I distrust financial advice from people like you is you are not completely transparent. If you can’t be completely candid, shut up and don’t waste my time.

  7. Michelle says:

    Mr. Gilani,

    How do I short along with you ?
    Can you recommend a big, safe institution to open an account ?

    Thanks !
    Michelle

  8. Rick says:

    Dear Shah…
    I read your articles and try to learn from them. Your last statement of shorting rather than selling. My question is probably a simple one… but I am still learning. What is the differance between “shorting” and putting a “Stop” in place to sell if the market goes down? Is this something simple to put in place?
    Thanks..
    Rick

    • Mary Ann says:

      I can answer this:
      1) a stop rather stop limit or market stop is saying that if the market (or stock) falls past this– level,.. sell me out at “this? price” NOW, NOTE: if the market GAPS down you best always have another stop below the initial one.Yes it can “GAP” down past/below where you initial market limit is. the market limit will sell out when the “market hits that target” Just in case if it is a growth stock especially ( but shah has them right now even on fixed type assets( that do not run up or down as fast as bonds/fixed.- ie more stable.
      NOW: SHORTING ;
      here is an example i wrote to a friend recently::
      When you SHORT a stock you are SELLING it. You are BETTING the STOCK WILL FALL, you want it to dump.. BIG.
      So you have to get your broker to lend you the stock (because you don’t own it) and you sell it at todays high price. . The money goes into your account immediately. Yay!. For example: you borrowed 200 shares of TTWO at todays price of $26.60… and you sold it so $5,320 goes into your account. Now you owe him 200 shares of TTWO. you have to repay your broker in the future for the stock you sold, you have to give back the shares you sold some time in the future. So your hope is that this puppy drops like a rock. So time goes on and it keeps going down and down more….. and finally you say “gee it’s gone down 6 bucks (to 20.60) and I think it might go back up now, I best buy it back before it takes off and goes North” You now have to buy back the stock and give it back to your broker because you didn’t own it, you borrowed it. You have money in your account because you received $5,320 for selling it. So you buy it back at $20.60 ( where you think it might stop at a potential triple bottom), a much lower price and give them back to your broker. You keep the difference which is $1,200. He’s happy to have his stock back and you keep the difference. So you made $1,200. You are taking the other side of the trade. You are the seller and sell at a high price…. and then you buy it back much lower and keep the difference. The lower the stock drops, the more money you make. So you made @1,200 on your short sale and now if you want to buy it for your own account @20.60 take your profit and buy it for your own account and hope that it goes the other way.
      Hope this helps. It’s just the opposite of buying low and selling high. More money has been made by going short quickly than in stocks going up. They seem to fall faster than rise.

      Your broker may not let you go short if you have no experience in doing it. Just be careful, if it goes up instead of going down..buy back right away, take a small loss. If you let it run up, you have to buy it back at a higher price to GIVE BACK to your broker.

      This should help you alot. Its a great written example:)

  9. Kim Wagner says:

    I agree with a comment above, why let out just enough info to inspire fear?
    No responses to the above info. Will be surprised if this is published. I have followed and even subscribed to some of these bearish experts. Timing these drops is impossible. I tried, only to be stopped out and the markets rebounded before I could re-enter. Markets can stay irrational longer than we can stay solvent, that’s for sure. Imagine, with a large enough following, one could create a mini market of one’s own. Hmmmm

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