Feeling Vindicated By This Sell-Off - And Looking At Toll Brothers

At this point we feel a bit vindicated with the market selloff. It is hard to stick to your guns when the vast majority of folks are pointing out new market highs. For us, this moment is a bit exciting. This is the time when the possibilities open up.

We took our first 2% position in the high yield market, even though it might be a bit early. We expect the possibility of adding to the position at a later date with a possible ultimate 10% portfolio target weight. We still continue to have large weights in large cap stocks. This is followed by minimal weightings in mid cap and no weight in small cap.

As to the 5% weight in Proshares Short S&P 500 (SH), which we have been touting for a few months now, the possibility of exiting the position and moving to cash is close at hand. We would like to see a solid 5% appreciation return. It is currently 2.5%. This leaves us with small weights in commodities and currency. The remaining is roughly 15% cash, exclusive of recent purchase. However, we see placing cash to work in the near future.

We don’t think the sell-off is over yet. There are a few bright spots that appeared as the market sold off. It was evident that people ran toward treasuries yesterday. The upshot is that the cost of getting a cheap mortgage rate is better. As long as they stay low, maybe this will aid in clearing excess housing inventory a bit quicker.

In turn, the homebuilders could be a buy, which we still continue to monitor very closely. We would love to get our hands on Toll Brothers (TOL) below $20. The dollar continues to fall, helping exports and slowing imports. This will buffer GDP and labor markets.

Additionally, the falling dollar will aid large cap international companies, as they translate profits back to dollars. Of course, the Fed may cut rates, but we don’t see this any time soon. Of course, prices are cheaper, so better for the long term investor.