The following opinion is my own and is predicated on
the expectation of continuing money growth in excess
of 10%. Threaders should form their own opinions as always.
Some equities may do okay in this environment, such
as consumer stocks, computers, possibly autos. One
should probably avoid banks, insurance companies and
other interest sensitive equities. I also like some communication
stocks. This does not mean I am wildly bullish equities.
I am still 70%cash/30% equities since October and the
30% equities are '00 Leaps plus a significant private
placement (which may hopefully blossom into an IPO this year.)
I continue to wait till May before expanding my equity
exposure, if at all this year, since I am yet unsure of the
Far East fallout and resolution.
From my perspective, the risk/reward needle points
toward commodities with low carry-outs(Corn), low
stocks(Silver), high economic sensitivity(Lumber, oil,sugar?).
I will stay on the short end of the curve and even
short bonds. I want to diversify my currency holdings
out of the dollar and into CHF,DEM,some JPY,and own more
gold. This is also prudent given the potential for a strong
EMU emerging.
These hedge positions must be executed gradually and with
care as I expect continued deflationary pulses from the Far
East to obfuscate emerging US inflation over the next six months.
Patience is required for these trends will probably emerge slowly.
Absent a slowdown in M3 growth I expect the inflationary
trend will begin entrenchment this spring and be measurable
this fall. Greenspan may have difficulty maintaining his policy of
gradualism in this scenario. Given high money growth, the Fed's
preoccupation with wage inflation is understandable. And they may
wait too long to tighten as a result of Far East concerns. Whether
the stock market will sense mild inflation, a declining dollar and
rising interest rates as a threat is beyond my ken. It was ignored
for the most of 1987 and could be also in 1998. Even interest rate
hikes could lead to only temporary market declines and subsequently
viewed as positive in this euphoric atmosphere. I would urge
anyone with substantial equity holdings to begin diversification
sooner rather than later and take some of their gains off the table.
For those that don't heed this advice, keep in mind that returns
carry risk and that Buffet has more information than you do.
BWDIK. |
