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Bubbles Pop: Commodities Kick Off

When you have company IPOs at unsustainable valuations like LinkedIn (LNKD) just did, you are probably closing out a bull market. Too soon? I don't think so. Let's take a look at some of the signs. The first sign? Commodities have been pulling back. Why? I agree with Andy Xie who projects Chinese real estate prices to fall by 25% this year and 50% in the next five years. That's conservative. Apparently bubbles don't burst anymore like they used to? They just deflate. While the global property bubble deflates/busts/pops, commodities will lead the way. Can't short, but still want to profit? Buy BOM.

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Long the Dollar
Ever since commodities rolled over and the silver bubble popped, the dollar has been in rally mode. I've spent a lot of time speaking with people all over the world who hate the dollar. Their argument is mostly that I should look at the U.S. as a company and that I should expect hyperinflation. Well, the U.S. isn't a company. It's a country, and it issues debt in its own currency and I see more risk for there to be a global collapse in industrial demand than a U.S. currency crisis. I expect this to persist as the euro continues to break down and the global industrial tide recedes and leaves China behind. I even think the yuan/RMB is overvalued. I've heard arguments that China is resilient and will bounce back from a 50% decline in real estate prices because everyone is expecting it already. It's hard for me to believe that a global economy that is driven by a communist country that has entrenched a society that invests into negative economic value add projects can be very resilient. Central planning has that drawback. How to profit? Go long the dollar UUP or short the euro EUO.
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Industrial Stocks: Start Rolling Over Already!
Stocks look cheap if you ignore the systemic risk and unsustainable trajectory that is breaking down in the global economy, specifically the industrial sector. The commodities are already partying and the stocks appear to be late to the party. It's crazy to me that the Index, although it is rolling over, is not trending downward yet. Give it time. The sideways trend will finally break down somewhere in the future. Perhaps now.
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Banks? Mostly Zombies Still
It's my hypothesis that we are pretty much seeing QE3 already. What else do you call the act of not raising interest rates for an extended period of time and an eventual raising of the U.S. debt ceiling? I think that if we didn't see low interest rates, we would see U.S. real estate prices fall 20-25% to a reasonable valuation. Call me crazy but I think that we could be seeing a new phenomenon where banks walk away from residential and commercial real estate. All this quantitative easing and spending simply diverts resources away from the private sector where they would be used more effectively. It's simply a different frame of thinking. The government is incentivized to spend more than it makes and companies are incentivized to spend less than they make. Sustainable long run employment comes from the latter, but it sure is fun watching banks trend lower. Sure they appear cheap at first glance, but mark-to-whatever accounting has its long term disadvantages and investors aren't completely oblivious.

These are the big trends I am seeing. It will be very fun to see how everything develops. Meanwhile, the VIX still isn't predicting a crash yet, so you can buy your put protection on the cheap. Some plays are more obvious than others and I am all ears and always willing to change my mind if new information presents itself. As for now, these are the macro plays that I think are investible.
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Source: Macro Plays: Trending the Crash of 2011