Felix Zulauf: 4 Ways to Profit in 2008 - Barron's

Barron's 2008 Roundtable participant Felix Zulauf of Zulauf Asset Management has a mix of long and short ideas for investors looking to capitalize on what promise to be volatile markets.

• Short the Consumer Discretionary SPDR ETF (XLY) - consumers have exhausted their home equity, which was a major source of funds behind the recent spending boom. At the same time, they are being squeezed by high energy and food costs. Currently $31, it should revisit 2003 lows of $20.

• Short the British pound vs. the dollar - which can be done by shorting CurrencyShares British Pound ETF (FXB), as another Roundtable member notes. At $1.98, it should reach $1.80 within half a year as the Bank of England will scramble to cut interest rates amid a bursting housing bubble and weakening UK economy.

• streetTRACKS Gold Trust ETF (GLD) and Market Vectors Gold Miners ETF (GDX) - should continue to rise amid low interest rates and gold's position as an anxiety shelter.

Zulauf also likes sugar and cotton. Sugar stands to gain from rising ethanol demands. Cotton should rise as the rising cost of oil-based poly fibers reduces the spread between man-made and natural fabrics.

Comments

[MichaelLofrano]

I suppose when things look bleakest, those things are about to change. Even so, I don't know what FZ sees in the dollar to cause him to bet long against the pound. Are the Brits in a morass of debt more so than the US? I just can't imagine anyone--government or consumer--as irresponsibly profligate as Americans. American printing presses are sure to be plenty hot churning out greenbacks to pay the ransom for our kids' future. I don't know, maybe across the pond there is a nation where every child's name is Oliver Twist.

[Alpha Seeker]

This is my boy. The smartest one of the pack.
I model myself after his so check my market analysis
Rob,
www.WallastonInvestmen...

[User 142738]

Believe it or not: the U.K. (and Spain, and France to an extent) are far more in debt than the United States. This is based on the debt-to-GDP ratio, not a monetary scale.

[Marol]

For Michael Lofrano: The point is that he believes the relative strength of the dollar vs. pound will shift. It doesn’t mean that we’re in better shape than Great Britain – just that he believes Great Britain will be in worse shape than it is now.

Shorting can be done by buying option puts on FXB. However, be aware that there is a lot of sudden swinging in currencies, including unexpected major swings. Financial news that's seen to affect the expected likelihood of FOMC interest cuts can cause swings. For example, a recent headline: “Dollar rallies as consumer inflation accelerates.” That’s because the Fed’s less likely to cut interest rates if inflation is high. You’re right about printing dollars and the resulting weakness. By the way, they stopped giving the figures for M3 – the total amount of dollars in circulation – some years back. Hmm, wonder why? The US election process will probably be part of the relative dollar-strength mix, I suppose. Further, I suppose (if I understand the phrase), more Fed cuts are "already priced in," both in the general market and the currency markets. Certainly, more US cuts are expected.

I personally like finance.yahoo.com/curr... to follow this. They have nice comparison charts. I'd watch it a while before jumping in. ( Remember, this doesn’t chart the options. TFN does – get the option quotes, and they have a chart as well. You can compare the ratio with the option changes. The actual ratio of the two currencies (amount one of a particular currency can buy of the other) doesn’t necessarily correspond to the option price. For one thing, a lot of these options are really thinly traded. (The TFN url is ttp://taipanfinancialnews.co...)
…………………..
Just for fun, here’s some of today’s headlines on www.marketintelligence.../:

Dollar Climbs To 12-day High Against Indonesian Rupiah; Pair Hits 9,284
(RTTNews) - Dollar Climbs To 12-day High Against Indonesian Rupiah; Pair Hits 9,284 For comments and feedback: contact [e-mail]
2/11/2008 11:53:00 PM
Dollar Sets Fresh Multi-month Low Of 32.89 Versus Thai Baht
(RTTNews) - Dollar Sets Fresh Multi-month Low Of 32.89 Versus Thai Baht For comments and feedback: contact [e-mail]
2/11/2008 11:48:00 PM
US Currency Spikes Up Against Hong Kong Dollar; Pair Now At 7.7984
(RTTNews) - US Currency Spikes Up Against Hong Kong Dollar; Pair Now At 7.7984 For comments and feedback: contact [e-mail]
2/11/2008 11:44:00 PM
Loonie Falls Further Against Majors
(RTTNews) - At about 11:15 pm Eastern Time Monday, the Canadian dollar fell further against its major counterparts. Currently the loonie is trading near 1.4583 against the euro, 106.49 against the Jap...
2/11/2008 11:27:00 PM
Canadian Dollar Falls To 1.0046 Against US Dollar
(RTTNews) - Canadian dollar falls to 1.0046 against US dollar For comments and feedback: contact [e-mail]
2/11/2008 11:24:00 PM
Aussie Hits New Multi-day Highs Against Loonie And Kiwi
(RTTNews) - Tuesday morning in Asia, the Australian dollar climbed to new multi-day highs against its Canadian and New Zealand counterparts. But the Aussie weakened slightly against the dollar and the...
2/11/2008 11:05:00 PM
…………….
All of these things affect each other as well! No wonder the experts are so often wrong.

Now, if I don’t have this all straight or overlooked something major, or it’s muddy (I’m more than ready to sleep), I hope someone will clarify/add to/change this – and I rather expect that someone(s) will, and fast!

I personally like finance.yahoo.com/curr... to follow this. They have nice charts. I'd watch it a while before jumping in.

[Jim in Hav]

Granted this is what those markets SHOULD do, but there are a few hairpin turns out there. Central banks and private equity mavens like Buffett, Ross, Zell will be doing their utmost to prop things up. This could make for some nasty short term trading moves. Take this week as an example - the S&P SHOULD BE off 150 points given the news (Consumer Sentiment, PPI, housing, jobless claims) but was it? No. Never underestimate manipulation.

Jim in Havertown