Been getting a slew of emails the last months and rather than say the same things over and over, thought I would address them in a post since the themes are all similar..
1- Financials:
Will not be touching them and are currently waiting for Wells Fargo (WFC) to rally a bit to sell out of it. Why? I no longer know the rules of investing in them. TARP and its requirements change almost daily. Going forward, the term (interest) the Gov’t demands and the shareholder dilution that accompanies them will become more onerous. That is bad news. Also, the second body blow from housing is due this year and next. That means more suffering for financials and shareholders.
Now, this does not mean I will never invest in them again, just that I think in 2010 we will still be able to buy them at these levels or lower. Is there value in financials? I just cannot quantify it as long as we have shifting rules from the Gov’t.
2- The Market
Up to 9000, then back to 8000 all year. The market will bounce like a ball but never really go anywhere. I think the risk is to the downside as the recession worsens. Unemployment ought to pass 10%, GDP will be negative for the year and credit is still drying up. So, given those, how do we go to 10,000?
That being said, it is a traders market. If you sell options you can make some money here. If you trade the rang you can also. If you are not a trader, don’t try to be one. Be who you are
3- Oil
Have written a lot about it recently. Why? Demand has fallen true, but the unreported story is production has fallen off a cliff also. Oil is not like a faucet. It cannot just be turned back on. A drilling project shuttered because of low prices today cannot just be flipped back on when prices recover. There is a tremendous lag. As crazy as prices were at $147, they are equally as crazy at $47. US production continues to fall, Mexico’s has plummeted and OPEC is more in power than ever. That only serve to heighten the Geo-Political risk of oil. Translation? One wacko can cause a global oil price spike.
I see the most value here now, or at least a market unfettered by arbitrary Gov’t intervention. Yes, I know that most foreign oil companies are govt’t owned, what I am saying is that if you buy oil today, your ownership cannot be diluted by the gov’t like it can and is in equities today.
4- The dollar and inflation….
Has anyone ever seen a scenario when massive supply of an item has not caused a devaluation of it? How can the current US Gov’t’s “running the dollar printing presses full tilt” like they are now NOT lead to a devaluation of the dollar? Here is the problem. The gov’t WANTS inflation to return. It will increase home prices, increase to prices manufacturers get for their goods, increase equity values etc. The problem is, gov’t always overdoes it. That means that they will pump too much into the system and inflation will get away from them.
That genie, once out of the bottle is only pot back in by inflicting more pain on the economy. It then becomes a vicious circle…
5- What to buy?
Right now? I am buying nothing but oil. Why? As much as we have sen the rules of the game change in the past year, still more is due. TARP requirements are, the tax code is, a stimulus is coming (we do not know the composition of it) and a Democratic Congress has plenty on its agenda. What looks good today may not tomorrow. Does this mean you should not buy anything? No. There of course will be plenty of equities that do wonderful in the next year. I just think there will be plenty more that do not.
Management now matters more than ever. Keep it in mind when buying.
Am I selling? Only the financials (sold most in the fall). I still like what I hold, Dow Chemical (DOW), AutoNation (AN), ADM (ADM), Borders (BGP), Oil (DXO), (DBO), Phillip Morris International (PM), Sears Holdings (SHLD) and GE (GE). I do have misgiving about Immelt at GE but am willing to wait as I think they will be a big beneficiary of infrastructure stimulus.
All dominate their businesses (except Borders and Sears, they are plays on the majority shareholders Ackman and Lampert) and are picking up market share. Dow will lead us out of recession as whatever needs to be made, they make the stuff that makes it and it yields 10%.
Wait and see….
This is the environment that one can make purchases that make one look like a genius for decades, it just takes a keen eye….
Disclosure (“none” means no position):
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