As I disclosed late last year, I plan to be transparent about what I'm doing with some personal retirement money in the interest of following the market.
Frankly, nothing has changed in the past month. I'm sitting on a large amount of cash and a small short position. You might say, "Ouch!" To which I say, "At least the short positions are small."
And the next question you have is "What are you going to do?" Like some Zen Buddhist meditating on a mountaintop, I'm going to do nothing. I may do nothing for two months. I'm in a mood to wait and start deploying the cash over a long time horizon. The market jumped 10%, and I missed that, so I'll wait for another opportunity
Since I have 90% cash and only a small short exposure, I can take the pain for the time being. The way the market is trading, I do not trust it. I'm waiting for another downturn in which I cover my shorts for a profit and buy stocks.
Things can change quickly in this market. Even though the stock market rose strongly in the beginning of last year, you could have waited and bought stocks more than 20% lower later. I was correct in my estimation that it was time to "sell in May and go away." I was also lucky enough to buy a few good stocks in August and sell them for a profit in December. I made only about 4% on those trades for the year -- but at least I did not lose money!
I'm not panic buying, because I think the market is still dangerous, and we may very well have another choppy pattern punctuated by vicious selloffs, like we had last year. Apparently, George Soros agrees with me.
Here are the five reasons I think the market is still dangerous:
The Greek situation is still unresolved.
Last year, the S&P 500 ranged from 1,074 to 1,370. That is a large range. The market topped in April and then fell nearly 22%. The market finished flat for the year, but it was a volatile year, and as we've demonstrated, a lot depended on when you bought and sold.
Our own Fred Goodman has a proprietary indicator that says this rally shows signs of topping out. In this rally, the S&P 500 has only gotten back to 1,320, which is still well below last year's high. So a failing rally here would be seen as a big failure, because we were not able to capture the previous year's high.
Yes, I missed the "pain rally" in the last month -- painful because so many people are not participating in equities -- but I'm not going to sit here and cry in my milk. I'm going to be patient, wait, and build a really good list of stocks to buy in the next downturn.
To update you on what we will be doing with the portfolio in 2012, I will be launching a new "Model Portfolio" for 2012 that reflects all our virtual trades as we try to zoom in on the best stocks in 2012. Next week, look for:
My Portfolio Update
A list of great stocks to watch and potentially buy in 2012
I think we will see deflation and deleveraging happened in the next 2 to 5 years. No matter what we do, somebody need to pay the debt. The central banks could print more and more money, but it only prolongs the deleveraging process.
Does that mean I shall avoid Gold and silver? I guess not. it's impossible to predict the future. So I am really eager to see what come next.
Even though there was a "deflationary collapse" in 2008, however brief, it was met with policy response from central banks. The pattern of gold & silver was that they were sold off with the rest of the assets during the market panic but then they bounced back faster and more robustly than other assets. Gold & Silver have both reached new historical highs since 2008 whereas stocks have not.
I believe this is the pattern that has held for the last 8 year or so and is likely to continue. The reason is that the market sees that the policy response to every chapter of the crisis (we are in one continuing debt crisis) is to print money -- which pushes up the precious metals. The major stock indcies when priced in gold is still well below its all-time high.
See this chart which shows you how gold has outperformed equities by a vast amount when equities are corrected for inflation and currency debasement. Below is a chart showing the relationship between the S&P 500 and gold.
It depends entirely on your point of view of whether we are we are going to get a Deflationary Collapse (and no reaction from Global Central Banks at all) or a Inflationary Death spiral caused by Excessive Money-printing.
If you are in Camp 1,then Gold and Silver will go down as well as other risky assets;then holding only the US Dollar,US Treasuries and only Super-safe Global companies which pay reliable and growing Dividends year after year after (like McDonalds,Walmart,J&J,etc) makes any sense.
On the other hand ,if you believe that the Central Banks will print like there's no tommorow(which is what the charts as well recent actions by Fed,ECB,BoE,SNB and BoJ suggest) then you want to hold plenty of Gold and Silver.
The thing is until we get a revolution,I dont see Central Bankers changing their way,which is why I prefer to Hold Plenty of Gold and Silver(especially in Physical form).
If I have learnt anything(absolutely anything) from Central Bank actions over the last week or so;its this-Everybody is going to print and print and print in the hope that this pushes their respective currencies(whose value the Clowns with PHDs are supposed to protect) as low as possible.
This beggar thy neighbour policy has only one eventual winner-Gold.
What these clowns don't realise is that this policy will end up destroying the savings of anyone holding their savings in these currencies[US,Japan,Europe,the UK,Switzerland,they are all printing with no limits].
Here's a great chart of various central Bank actions since 2002 from SaxoBank.
I don't think the Financial World is going nowhere as you put it-My feeling is we are very close to the precipice-A Major Debt blowup followed by Hyperinflationary meltdown ;will Japan be the first place to experience it? Not sure.
Could be Greece as well.
Regards
Ashish.
P.S For an alternative view,do read the Message Board I started here on how Iran's decision to use the the Yen(as an Alternative to the USD and Euro) could be the start of something more dramatic.
Thanks Ashish. Yes I follow the Japanese situation closely it is fasciating to me and it's funny how nobody else worries that it could also be our future -- a financial world ruled by Central Bank and curency manipulation that goes nowhere.
The carry trade appears to be the perpetual trade -- especially with the Fed's actions yesterday.
I will follow that link it sounds interesting. Do you follow the work of Kyle Bass? He expects Japan to eventually collapse but of course we've been waiting for that for years and years.
The blogs and comments posted on Investor Uprising do not reflect the views of Investor Uprising, PRNewswire, or its sponsors. Investor Uprising, PRNewswire, and its sponsors do not assume responsibility for any comments, claims, or opinions made by authors and bloggers. They are no substitute for your own research and should not be relied upon for trading or any other purpose.
To save this item to your list of favorite Investor Uprising content so you can find it later in your Profile page, click the "Save It" button next to the item.
If you found this interesting or useful, please use the links to the services below to share it with other readers. You will need a free account with each service to share an item via that service.
Tweet This