<How do you play this train wreck? >
Well, I'm very friendly to the Seth Klarman view expressed here. I still think shorts are the way to go. If I had to guess I would say over half of stock values get wiped out this year, and much more in the flyers.
Message 19780053
Obviously the sentiment of the situation encourages people to "buy something". I visualize the trainwreck unfolding very quickly now. That means once price rationing really takes hold in these various commodities, the world economy seizes up. So you get an odd situation, where Wal Mart shoppers are all lined up with their credit cards ready to buy Asian imports, but the Asian can't even get the key raw materials to manufacture their exports. Maybe they can gear up to send us millions of wool coats and scarves this spring, since apparently there is still a glut in wool <g>? Wal Mart can run an ad: "Buy wool products in summer, you'll need them in winter when they cut off your gas".
Regarding demand, I know misheldo spends a lot of time posting about jobs, but jobs have nothing to do with consumer excess, and if the credit punch bowl isn't removed it won't. The real equation: consumers have borrowed seven and half times their wage gains over the last two years, and with 4.1% 10 UST, that's still going on as we speak. Talk about leverage. And in the train wreck, out of input goods set up, it doesn't matter how much overcapacity there is in China. So I'm sure as Asia seizes up, there will be a profiteering orgy of sorts. The folks who have hoarded the oil (or produce it in such "friendly" sources as Saudi Arabia, Nigeria, Venezuela, Russia) and the copper, and the nickel, and the soybeans, etc, etc, will just do a stick up.
So the real question you are asking is how does one play a crack up boom?
Message 19761375
With difficulty I'd say. The problem is going to be timing the seize up (and subsequent bust), which is going to wreck the global economy. Watch the Chinese stock market, and the Baltic freight index (shipping activity), and commodity prices (including speculative positioning), watch that LME inventories in copper and nickel (and try and track iron ore), watch OECD and DOE petro inventories
rjcapitalmarkets.com
as those are four essential input items to a functioning manufacturing economy. If you don't have those items,
Message 19774373
Message 19771254
you're out of business, PERIOD, regardless of how much cheap credit American consumers have access to.
So this weekend judging from all the tea leaves, we see shipping rates suggesting the mad scramble for input items is still on big time.
quote.bloomberg.com
We see LME metal inventories falling like a rock;
metalprices.com
The Chinese stock market is a little shaky, which is leading something (the bloom coming off the boom?) I suppose.
stockcharts.com[l,a]daclniay[pd20,2!b50][vc60][iUb14!Lc20]&pref=G
Speculative positioning: In a crack up boom (with extremely negative real rates), I think you're almost always going to see specs leveraged and piled up into commodities. So I'm going to adjust my thinking on how I view this. If I see commercials long something, I'm going to jump all over it. Right now that's natural gas at plus 8,341 contracts. I reentered some of my prior energy plays that I had sold in early January before the correction. The three primary ones are REM (@ 18.50) and EOG (@ 43.25) and APA (@37.00). Those are primarily NG producers, not oil, and generally lightly hedged.
Metals: It's good to see the spec position reduced from 193,000 to 130,000 (w/options). That's still pretty high, but lowers the risk. I now going to maintain my remaining PM stock positions (AGI (Cdn), SUF (Cdn), GBU (Cdn), and WTZ. I'm watching NXG for an entry point, that I was thinking of selling once they went long term (now). It's probably OK to start wading in, and if POG sold off on some new WAG agreement and/or CB games, I'd consider it a gift and get aggressive.
Interest rates: I was keying a lot on the huge Eurodollar commercial short position of 243,000 two weeks ago, when I entered my June ED short at 98.745. Well, now it's clear they were just positioning for the "language change" BS from the Fed. The June EDs got down to 98.61, where I was tempted to cover on a trading basis. But judging from the improving labor numbers I was seeing on my DTS W&S data,
Message 19760917
I decided to play for a surprise. Now that we have the delayed commercial figure on ED, we can see the smart money had no such same intention, as they covered all their shorts, and are now slightly long at 13,194. If I had that figure before the labor release I would have covered, unfortunately it's delayed. So at this stage I'm neutral (but still profitable) on rates in the short term. I will likely cover the ED short at 98.65 for about a 10 bps profit. If it stays above that I will hold, as I think the 2/19 PPI and 2/20 CPI numbers could be "inflation enlightening". |
