Here Comes the Bear Again
May 13th, 2009
I thought I had called it so well two days ago when I cashed out of my defensive silver and Phillip Morris International (NYSE: PM) positions and moved them in to a double long S&P 500 etf. My goal, was to wait and see what oil was going to do, and when the time was right get in to USL and a double long XLE energy producers, hopefully netting a nice little profit off the S&P. I wanted to park my cash in something in the interim since inflation concerns were increasing and the dollar was getting crushed. I’ve had inner bullish sentiments on crude for such a long time, I felt like we were really about to enter the price adjustment that really should happen for crude, pushing it above $60 a barrel and potentially up to $70. I was just waiting for the point where I thought it would happen again after I got burned going long crude during the summer.
Man was I wrong
Today’s markets gave me a pretty resounding “No!!” to the double long S&P, and although Asian markets seem to be just responding to the bad retail report, they weren’t much help either. Looking at the way S&P 500 futures moved, although it wasn’t significant in Asian markets, it was down a bit, pushing it in my mind farther below the bearish threshold.
I felt like maybe we were starting to move in to a significant rally, or at least turn slightly bullish, based on the fall in the dollar and the amount of money that’s coming out of the government’s wallet. That being said, it really seems to me right now that the massive deleveraging that has been going on is going to continue, and although a gasp for breath, the recent rally wasn’t anything to write home about.
My Plan
I’m somewhat on the fence about pulling out of the double long, but if reports like the EIA don’t come out positive I think this rally is finished, and I’ll definitely sell my position for a slight loss. Per the rules of my account I won’t be able to move them into anything like SKF right away, which i would do right now if I had the chance, but I will hold on to the dollar because I think a renewed flight to safety will be a boon to it as people remember why they love treasuries. If all goes well, I’d like to pick up crude again once we fall down.
What I’d Be Doing if I wasn’t Poor
Long equities, barring some miraculous jobless claims numbers, are in my mind dead. I would say go long treasuries, but the ticking time bomb of inflation could really burn you if things turn around again or if the flight to safety is not significant. People are going to start to focus on defaults as this recession looms on, so that coupled with inflation could make bonds a weak idea.
I’d be in short or ultrashort positions, basically targeting the companies and sectors that rallied the most with this jump we saw the last few months. Outside of that, I say keep your money off the table, because I don’t think anything will perform well.
How I Feel About Gold and Why I Exited Silver
Earlier I said that I exited Phillip Morris International and my silver positions, and I thought I might explain why because based on the way gold and silver have been trending, it would seem a perfect option in a rallying/recovering market where people begin to focus on inflation again. My exit was mostly due to the fact that I had seen an 11% return in silver, and frankly I was a little upset about how poorly it and gold had performed post-Lehman collapse. The flight to safety and away from fiat currency did not happen at all in the way I thought it would, and they frankly just lagged. The only time we really saw returns from those two was when the market was doing well, in which case the S&P outperformed them.
For me, I was done. I’m still holding DGP (double long gold etn), but that’s mostly as an inflation hedge and I would love to exit that once I see a return and put it in crude. I don’t think that will be happening any time soon.
Gold if you ask me, for this world economy at least, is overrated. Maybe I’ll be wrong, and in the post-apocalyptic ruins of the United States gold will rein king. But the probability of that is very unlikely, and I think the man that holds crude oil and gasoline in that scenario would be the one in the best situation.
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© 2008 Andrew Jarmon
