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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: mishedlo who wrote (49971)4/23/2006 10:41:17 AM
From: Perspective  Read Replies (1) of 116555
 
While I'm reluctant to carry much of any commodities exposure any longer (actually I'm now out of them completely, and very nervous about the decision), I think I've found another couple of investment themes that succeed under either scenario, just due to natural market forces.

Basically, the old-line commodities-intensive companies are darned if the Fed does and darned if they don't. The Fed is hosed on commodities, and may not even care. So if your costs depend highly on commodity inputs, you are hosed.

The first theme is airlines. I think we're finally hitting the tipping point on them where their profitability falls this late in the cycle regardless of Fed action. If the Fed stays tight, we get a general recession and revenues drop. If the Fed eases, their cost of inputs has risen to the point where it outstrips the positive impact on the revenue side of the equation. I think we're just now seeing this show up in their stock prices:

stockcharts.com|D

The other two themes I've got are the auto manufacturers and - you guessed it - construction. We've hit the threshold where the steel companies' gain has become the construction companies' pain. Materials prices are rising faster than demand for construction, and I suspect this is really starting to nail profitability just as the demand is tipping due to higher financing costs.

Do you have other suggestions along this theme?

Short manufacturers, with a service economy long hedge would seem to be a pretty decent combination.

BC
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