Stock Market Lessons

Are puts a better bet than gold if the market declines?

I got burned in the last six weeks — lost a sum I can’t afford to lose. The saddening and maddening part is that my strategic vision for the economy was 100% correct. I just mis-executed on that vision.

Six weeks ago I figured out that the recession was going to turn into a depression, and get deeper and last a long time, and pull down the whole economy and the stock market. I knew this in the 4th week in May.

So what did I do. I invested in gold futures — call options expiring in Jan 2011 strike price $1,100/oz.

My theory was that this was a way of betting against the market, and it was much safer than shorting stock. See I was trying to play it safe. I figured the market would go down, gold would go up, people would seek the haven of precious monetary metals like silver, gold, platinum.

So what happens? Everything in my vision turns out to be 100% true and correct except gold goes in the toilet along with the market and the economy.

Meantime the Fed starts creating paper money, about $1 Trillion every two weeks. In a regular normal logical world this would make the price of gold go up right?

So what happens?

The paper fiat greenback dollar suddenly becomes the Emperor of all Value in the World — the only thing people want — just more of those paper dollars please. What? Why? How Come?

OK, so now I’m wondering if there might have been a smarter way to execute on my vision. Maybe buying puts on the DIA ETF (Dow Jones Industrials Tracking fund — sometimes called the Diamonds).

So all the complicated features of gold would have been eliminated. It would have been a pure bet on the gist of the vision with no impediments or distractions.

This would have been so much smarter for me. On the same vision.

Puts would have been better than gold.

Trying to play it safe was a mistake. I guess courage of one’s convictions is key to money making. Wall Street chews up and spits out smart people every day. One gains ability to cope with Wall Street by learning the lesson from every painful loss of capital.

Am I understanding any part of this correctly. I really am asking for some help here. There’s nothing rhetorical about this question. I know there are people out there much wiser than I am about investing, so please, if you are one of those, share some knowledge with me now. I stand confused, saddened, and in need of some friendly guidance. Would DIA puts have been better than GLD calls, given my vision, and its time of occurance. If so, can I store this up as my lesson learned from this painful experience, or am I still way off base?
In Weimar when they printed a Trillion marks every two weeks the paper money became worthless.

In Argentina when they printed a Trillion Pesos every two weeks the paper money became worthless.

But in USA, in 2009, for the first time in 3000 years, when they print a trillion dollars every two weeks, the paper dollars just get more and more valuable.

What is this some kind of big trick just to fool me? Is it lile Lucy and the football with Charlie Brown. Do all the rules of the universe have to suddenly change and turn around by 180 degrees just because I make an investment? I admit it, I’m at my wit’s end, so I’m paying 5 points here to see if anybody can help me out.

You answered your own question. Don’t complicate things by trading a different market from your analysis. Your analysis involved the economy/business and stocks, yet you traded a metal?
A cursory glance at the different markets will show that EVERYTHING has been going down together for a year. There has been no safe haven and no successful bets to the upside, merely a cleansing of excess in all markets and all countries.
Inflation killed the currencies in Latin America, not printing money. Doesn’t apply yet to the US, but it will eventually.
The next leg down in the markets is just beginning. If this is still your vision, buy the put on the Diamonds or the Spyders. The metals and real estate and oil and corn are all in their own little world. Just be aware the options are a wasting asset. Short the DIA or SPY directly at 2:1 or 4:1 margin, and you can hold until the cows come home.