I'm still trying to recover my composure from last week. I knew the Fed was in the business of trashing the currency, but I thought even *they* had enough respect to tread lightly given the precarious technical position of the dollar. Now I know better. The only things keeping me from going full-bore long gold, materials, commodities, and exporters is the fact that I still think they may be overwhelmed by the forces of economic nature. One thing is clear - there's no free lunch here, and the "free lunch" that Wall Street is getting is going to be paid for by the American public at large, and potentially some of our overseas neighbors that have been "kind" enough to finance our profligacy in the recent past.
Given what looks like a complete impulse up in gold, I'll be hoping for a 38% retracement to begin buying back some of my long-lost metals exposure. I still struggle to invest in gold - I understand bonds and equities - they generate cash flows or implied cash flows that can be compared to alternative investments. But how do you determine what "fair value" is for gold or wheat or oil? How high is "up"? I just don't know how to do it. (Of course, knowing how to value a cash flow has made a damn bit of difference to an equity "investor" since about 1995.) So I guess I'll be relegated to my bonds and equities for the time being. I was focused on (selling) the real estate bubble and economically sensitive companies. My new theme will be shorting companies with non-dollar expenses and dollar-based revenues, and going long companies with dollar-based expenses and non-dollar revenues:
*Restaurants appear to be an all-around win: if the economy avoids recession, food inflation will increasingly damage their profitabilty. If the economy tanks as I think it ultimately will (is?), their sales drop and hurt their profitability.
*Airlines: expenses largely imported petroleum (non-dollar) with dollar-based revenue. Again, avoid recession and their costs soar, go into recession and their revenues drop.
*Trucking: ditto
*Building materials: why in the world have these hung in there as long as they have?!? MHK LPX MAS CX
*Homebuilders: some have already fallen 80% off their highs, but others have just been cut in half. I'll be targeting those: MDC TOL LEN JOE FNF NVR
*Retail: this is going to hurt for the consumer, no doubt about it. Whether it's inflation, recession, or both, profitability will suffer. Short SHLD JCP WSM
*Emerging markets: I'm largely back out of this because I clearly don't understand when it's going to top. However, I'm still short Mexico via EWW and CX due to what I think is a tight linkage to the U.S.
And finally, for the first time in my life, I'm actually considering a short position against bonds. Short TLT, and maybe a junk bond fund or two. It appears the long-lost bond vigilantes may be making a return appearance.
BC |
