- The markets' slow and steady climb for the year continues and looks like it should take us to 1250 at some point in the year, thanks to free money ala gentle Ben. The temptation here is to leverage up now with cheap money and buy assets before they become more expensive. Much like easy money during the tech crash and the real estate crisis, the Fed is offering you an opportunity to ride the bubble up—just this one last time…
- The biggest market risk appears to be a sudden rise in interest rates as the bond market prices as the market gets indigestion. As money moves out of cash and “reverse capitulation” occurs, rates could move higher.
- Gentle Ben could get a shock particularly if bank lending starts to pick up dramatically. This moves banks out of treasuries and could boost mortgage and treasury rates quite high. The government balance sheet is too high to afford anything other than a reflation of assets. They’ll try to avoid CPI, but real estate assets need to keep rising to avoid the worse case scenario. So far so good with the Fed’s “theoretical experiment”.
- Tech, financial, natural gas (companies, not commodity) have been my favorites for a while now. This continues to be the case although it’s quite likely natural gas equities may get a downtick. Particularly some of the speculative ones I am in like Westport Innovations (WPRT), Apache (APA), and Clean Energy Fuels (CLNE).
- The second largest risk is the rising trade tension with China that can lead to a trade war. This has kept me from jumping in on commodities as these will be hit materially hard if there is some kind of problem.
- Currency positions-- short UK Pound, Euro.
- Once the Fed stops buying mortgage rates, real estate should double dip at least somewhat, with most of the pressure on the upper end.
- German Exporters look great as an investment.
- I consider myself a huge believer in free trade, but the IP law and non tariff barriers in China might have passed muster when their economy was small 10 years ago. However, now it’s simply too large and is creating major disruptions. China’s trade should continue to grow but both countries need to find a way to make capital and trade flows a little more balanced in the interest of both countries.
Be careful not to be the last one sitting in the chair, but in the mean time enjoy the music.
Disclosures: Long all the equities mentioned, tech (networking, wireless), financials, and gold.