Nine Ways to Profit in 2009 45 comments
Matt Callow
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The Big Picture:
Resist the urge to jump into this sick market. Anyone looking at 2008's near 40% decline will feel tempted to jump in at these bargain-basement levels. If you reference the year 1930 (one year after the start of the Great Depression), you may think twice. Despite all the fiscal and monetary stimulus being thrown at our economic mess, the US, and the world economies will look a lot like they did in 2008.
Political and Economic Predictions:
- Oil falls into a range of $20-$30 where it settles for a short period. Be on the lookout for a complete collapse of Russian and Venezuelan economies as they cannot exist on such a low oil price. Expect military conflicts to ensue around the world, which will raise the price of oil somewhere between $45 and $85 by year end (depending on severity of conflicts).
- Eastern Europe's massive debt loads and Western Europe's over consumption, and economic infighting cause massive upheaval within the EU. Expect European banks to rapidly erode, followed by the fall of the Euro, and maybe some major EU partners pulling out of the EU, or at least pulling out of the Euro.
- Global recession continues. Talk of resisting isolationism is overcome by reality. Isolationism and protectionism accelerate global recession, causing commodities to continue the path of deflation. Talk of hyperinflation will be prevalent in 2009, but will not be seen until 2010 or later.
- Hedge fund industry (with massive amounts of cash on hand, ready to move back into the market) cannot save the economy. Calls for new regulation, and inability to make profits under the current "2-and-20" high watermark standard leads to massive hedge fund closings. We have only seen the tip of the iceberg on this one.
- Gold ultimately trades higher. I expect gold to waffle around its current price in the near-term, with a possible trend to the downside (due to commodity deflation), followed by a year-end rally (flight to safety) that closes out above $1000/oz.
- 2007 was the subprime crisis, 2008 was the credit crisis, 2009 will be the consumer crisis. Unemployment will hit double digits (maybe not until 2010), housing markets will continue to fall, consumer defaults on mortgages, credit cards, and student loans will explode. Expect retail, and automakers to continue to struggle. China's economy will continue to falter (at a more rapid pace) due to the falling US consumer demand. Tech stocks finally take a long-overdue beating.
- Despite attempts to lower mortgage rates to 4%, the move will fail to kick start the housing market. Refinancing will balloon, leading to a further split between the "haves and the have-nots."
Nine Ways to Profit from 2009
One lesson learned from my 2008 predictions was not to lock myself into any theme for a full twelve months. All of these predictions will be employed with the ability to trade in and out of themes as prices and conditions warrant. All moves will be posted before they are made on my blog.
The following themes investments will make up the 2009 Aggressive Trader Portfolio:
Theme 1: Short Banks. We have not seen the end of this story.
Action: Buy FAZ.
Theme 2: Short Oil to $25, then reverse and go long.
Action: Buy SCO.
Theme 3: Short Technology.
Action: Buy REW.
Theme 4: Long Gold.
Action: Buy DGP.
Theme 5: Short REITs.
Action: Buy SRS.
Theme 6: Short China.
Action: Buy FXP.
Theme 7: Short Europe. Although I'd like to short the Euro, that currency play would be too risky. With the Fed publicly acknowledging its plan to use Quantitative Easing, (and the ECB's lack of willingness to do the same), I cannot feel confident that the Euro will fall, relative to the US Dollar. Instead, we will short European markets by shorting the MSCI-EAFE Index, which contains about a 70% share of European weighting.
Action: Buy EFU.
Theme 8: Short Retail
Action: Buy SCC.
Theme 9: Short Toyota Motors (TM). Although it is in a healthier financial position than any of the Big Three Automakers, Toyota is facing the same falling demand, and the same discerning consumer. On top of that, expect the new administration to throw billions more at the American companies with nothing going to TM. Finally, a strengthening Yen makes US auto sales less meaningful and less rewarding to the company's bottom line.
Action: Buy TM.SK (July '09 Put Options 55.00 Strike Price)
As always, standard disclaimers apply. No guarantees are implied. Do your own research and invest at your own risk. Good luck in 2009.
Disclosure: Long SRS.
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This article has 45 comments:
We barrow from China to pay Russia now, but if China wants to cash in, then where can we barrow? May be Madoff could help.
On Jan 02 08:18 AM y3115y wrote:
> Please tell if the printed money will cause inflation?
> We barrow from China to pay Russia now, but if China wants to cash
> in, then where can we barrow? May be Madoff could help.
On Jan 02 09:12 AM Fliujniligui wrote:
> I'm not as pessimist. I think many of the suggested moves in this
> article are highly speculative and rely on so much unreliable predictions.
> Shorting China is the most suicidal thing I saw on finance site these
> days.
The information how to do it is out there if only people pay attention at what the real world is saying instead of CNBC talking heads. Example: new book called Hedge Fund Operational Due Diligence: Understanding the Risks by Jason Scharfman.
Amazon link: www.amazon.com/Hedge-F...
I doubt any Madoff investors read anything like this!
1.Crude Oil 10-15 a barrel.
2.Sell financials indefinitely.
3.Sell China or Asia or any index even DAX or DJIA will do.
4.Sell REIT.
I don't agree:
1.Gold will crash more than Oil, probably we are heading for 200-300 $ an ounce soon.
If Oil will be 20$ I promise Gold won't be 1000 nor 700, it will be at highest 500.
I agree with you thesis on the banks and commercial real estate.
Ryan
On Jan 02 10:07 AM Dan Corso wrote:
> When you say "short China", do you mean not to invest in "any" foreign
> stock? Where would our economy go if we all "followed" that strategy?
> We must not pull all our dollars out of the system and stuff it in
> our matresses. If you don't believe in our investment in "all of
> this world" then you better go "hide" up in the mountains somewhere,
> and hibernate, until the next civilization comes to light. I don't
> know how long you can servive on "eating your stash of greenbacks"
> , but I believe it wouldn't last more than a week.
On Jan 02 08:18 AM y3115y wrote:
> Please tell if the printed money will cause inflation?
> We barrow from China to pay Russia now, but if China wants to cash
> in, then where can we barrow? May be Madoff could help.
That represents serious economic issues for the globe and we are
headed depression scenario imo.
If you are correct then are best option is join a commune...and
certainly forget about global equities, including China...forget
gold to...invest in farm equipment..
Oil bounced pretty hard at $35, production is being cut, people are
driving again- hard to see that scenario as summer gets closer..
the longer it stays low...the more we pay in 2-3 years imo..
1. Oil at $10-15..What? A quart? Oil will easily hit a high of $85 in Summer
2. Gold..$500!! Only if there is a world wide monster deflation...which is NOT in the cards...Gold will hit a high between $1100 and 1250...
To our author! Matt....the Russian economy won't collapse..they can live of monetary reserves and nat gas to Europe..Venezuela! Adios Hugo..it was not nice knowing ya....
IF a major partner..I suppose you mean France..Germany..Italy... ..pulls out they'll all pull out...Which won't happen...moving back into Deutchmarks or Francs..or (God forbid..) the Lira are major headaches and take much time to implement....
On Jan 02 11:17 AM 1977°C wrote:
> Things I agree:
>
> 1.Crude Oil 10-15 a barrel.
> 2.Sell financials indefinitely.
> 3.Sell China or Asia or any index even DAX or DJIA will do.
> 4.Sell REIT.
>
>
> I don't agree:
>
> 1.Gold will crash more than Oil, probably we are heading for 200-300
> $ an ounce soon.
>
> If Oil will be 20$ I promise Gold won't be 1000 nor 700, it will
> be at highest 500.
A. You now have a personal attack.
B. You can eliminate that attack by clicking abuse below the comment of the abuser.
Matt: welcome to the club.
Pinelli: This site is for investment ideas. The Article is about investment ideas. Your comments are derogatory, where are your investment ideas? You know specifics like the Author provided.
I've pick a great day to enter my triple shorts, Good prices for them.
Maybe oil goes to $50 next week, hope so. Gives me a chance to take a serious profit on DXO in my real time portfolio. Remember when oil spiked earlier, this is another spike to savage the shorts.
IMO
Oil could go as low as you said. The charts suggest it is possible. But, I'm betting the low is in or close to it for two reasons. Even if some people think oil could go as low as you say, $20-$30, I think most people expect it to rebound in 2009, just as you said. If they expect it to rebound to $45-$85 by the end of the year, why risk missing the opportunity to buy at $30-$35 and chasing the price up should it head back up early? Why not buy in at $30-$35 and add more if the price weakens. I think most people would see it that way and such an attitude will prevent the price from dropping all the way down to $20.
Also, historically the price has already dropped as much percentage-wise as it did after the 1970's oil crisis. To fall all the way to $20 would mean a much larger drop percentage-wise. It could happen, but if it does, it would confirm that that this recession/depression is as bad as you think.
To me, the opportunity to buy oil at $30-$35 now and probably double the investment in a year or two years at most seems like a very good bet. I bought USO at very close to $31 with about half the money I wished to dedicate to oil before Christmas. I'll hold the other half and see how it goes 1Q '09. If the price drops to $20, I'll buy more. If the price goes up and the future looks as bleak then as it does now, I'll sell and bet on a second big decline in the market to buy back in.
Thanks again for your predictions.
Oil it might hit low 30 I don't think it will go bellow that(and it wont be for long on such level). It's general knowlege that you buy oil when it's low and wait for the conflict.
Gold I would rather say that it will stay at 600$-800$
some counrties will be in recession some not (slowdown is sure).
Oil go long term when situation in gaza will settle down
On Jan 02 07:28 PM aitvaras wrote:
> It is /was a really great day, the dollar went up, oil went up gold
> went down.
>
> I've pick a great day to enter my triple shorts, Good prices for
> them.
>
> Maybe oil goes to $50 next week, hope so. Gives me a chance to take
> a serious profit on DXO in my real time portfolio. Remember when
> oil spiked earlier, this is another spike to savage the shorts.
>
>
> IMO
A couple of months ago, I nibbled a bit, here and there, in energy (oil/gas pipeline MLPs) and am looking to add Asia/ex Japan positions around the end of Q2. Some decent plays available in convertible bond funds, too.
I think User 330190 has the right idea.
I used the ProShares ultrashorts (and to a lesser degree ultras) for much of 2008 until I realized how much they lose just be the passage of time. Beware!
2008 was a year for the Shorts, but 2009 I don't know.
For example here's a fellow trader's thesis in March '08:
- The consumer is in trouble and because of this retailers will suffer in second half of '08
- The most hardest hit consumers are those at the bottom of the ladder
- The stores they shop at: Walmart, Family Dollar & Dollar Tree will bear the brunt of the demand destruction
Oh how wrong he was!
A flaw in the combination of assumptions can cause one to lose *big*
During 2008, FXI dropped from 60 to 30; FXP dropped from 75 to 35!
On Jan 02 11:17 AM 1977°C wrote:
> Things I agree:
>
> 1.Crude Oil 10-15 a barrel.
> 2.Sell financials indefinitely.
> 3.Sell China or Asia or any index even DAX or DJIA will do.
> 4.Sell REIT.
>
>
> I don't agree:
>
> 1.Gold will crash more than Oil, probably we are heading for 200-300
> $ an ounce soon.
>
> If Oil will be 20$ I promise Gold won't be 1000 nor 700, it will
> be at highest 500.
Buddy, we're not "all in this together!" And we're not lemmings! The idea is to get in before the masses get in, and get out before the masses get out. Also, do your own homework. If it looks to you like China is about to bust, why would you want to keep your money in China? Personally, my money is about to come off the sidelines and get back into mutual funds. I'll never hit a gusher, but I also don't drill dry holes.
On Jan 02 10:07 AM Dan Corso wrote:
> When you say "short China", do you mean not to invest in "any" foreign
> stock? Where would our economy go if we all "followed" that strategy?
> We must not pull all our dollars out of the system and stuff it in
> our matresses. If you don't believe in our investment in "all of
> this world" then you better go "hide" up in the mountains somewhere,
> and hibernate, until the next civilization comes to light. I don't
> know how long you can servive on "eating your stash of greenbacks"
> , but I believe it wouldn't last more than a week.
On Jan 02 10:07 AM Dan Corso wrote:
> When you say "short China", do you mean not to invest in "any" foreign
> stock? Where would our economy go if we all "followed" that strategy?
> We must not pull all our dollars out of the system and stuff it in
> our matresses. If you don't believe in our investment in "all of
> this world" then you better go "hide" up in the mountains somewhere,
> and hibernate, until the next civilization comes to light. I don't
> know how long you can servive on "eating your stash of greenbacks"
> , but I believe it wouldn't last more than a week.
1. A 35% increase in US and European stock markets by year end 2009
2. Oil stabilizes at around $45 and climbs to $65-$68
3. Both US Dollar and Euro drop substantially against British Pound
4. Emerging Markets steady and bounce back.
5. Fiscal stimulus packages begin to work and confidence returns
6. The US/European media finally realizes that gloom and destruction is a self fulfiiling prophesy.
7. Gold falls back to $625 by year end after fluctuations.
8. Silver will outperform gold
9. Warren Buffett is not stupid, and his buys in the fall and winter 08-09 quickly come good.
10. A 40% increase in the UK, China and Brazilian markets in 2009
If one looks at the China ETF such as CHN, the typical "Impulse Response" sharp spike had occurred long ago (where it was best time to short), the remaining story is a mirror image with CHN settling down from now $16 to around $10 and staying there for a long while.
This is my heuristic guess, no scientific analysis behind. So there is just not much to short from 16 to 10.
On Jan 02 09:12 AM Fliujniligui wrote:
> I'm not as pessimist. I think many of the suggested moves in this
> article are highly speculative and rely on so much unreliable predictions.
> Shorting China is the most suicidal thing I saw on finance site these
> days.
Bye and large, my experience told me that short players, unless you are the seasoned full-time professionals, need to be cautious. The human mind is always slanted toward the optimistic side, and the short opportunity more often than not occurs in a much narrower and shorter window.
Take for example, ODP. It went from about 4 dollars in 1990 all the way to $44 in 2006, over 25 times with two splits in between. The golder moment of short only occurred in the 3-month window of September to October of last year when it dropped below $2 in over 20 years.
So unless you consider yourself a professional, be careful.
Unless middle east can play nice up we go.
Signed,
Aggressive risk my own money guy!
I did say in my predictions that I would be trading in and out of these themes during the year. With that said, I will be making some changes at tomorrow's open. Please see my blog for details.
Please keep us updated -- a year is an eternity in this market!
Just two months into the new year and we're cruising nicely with this year's Themes. Eight of our nine themes are up an average of 57%, with one theme down modestly:
Theme 1 (Short Banks): Up 100%
Theme 2 (Short Oil): Up 143%
Theme 3 (Short Tech): Up 13%
Theme 4 (Long Gold): Up 24%
Theme 5 (Short Real Estate): Up 37%
Theme 6 (Short China): Up 31%
Theme 7 (Short Euro Banks): Up 69%
Theme 8 (Short Consumers): Up 39%
Theme 9 (Short Toyota): Down 10%
Total portfolio return since January 1st, 2009: Up 49.54%
On Mar 03 10:55 PM Matt Callow wrote:
> You can find updates on my blog: themonthlystock.blogsp....
> I just updated my results for these themes tonight. I'll post it
> here as well:
>
>
> Just two months into the new year and we're cruising nicely with
> this year's Themes. Eight of our nine themes are up an average of
> 57%, with one theme down modestly:
>
>
> Theme 1 (Short Banks): Up 100%
> Theme 2 (Short Oil): Up 143%
> Theme 3 (Short Tech): Up 13%
> Theme 4 (Long Gold): Up 24%
> Theme 5 (Short Real Estate): Up 37%
> Theme 6 (Short China): Up 31%
> Theme 7 (Short Euro Banks): Up 69%
> Theme 8 (Short Consumers): Up 39%
> Theme 9 (Short Toyota): Down 10%
>
> Total portfolio return since January 1st, 2009: Up 49.54%
>