Frankly, I am utterly confused by this market - first time in a long time I
can say that. With all the behind the scenes socialism and hedge fund
liquidation, not much of the action makes sense to me the past two weeks -
technicals are not working correctly - when indexes break down, they hold up -
when the dollar increases 1%, commodities drop 20%. No sense. What stunk 3 days
ago is now worshiped; and vice versa. If there is a 5% rally from here I have no
idea which group the hedge funds will flock to - will it be commodities? tech?
financials? retail? or something else? Or does it matter, because they will
rotate from one to another within the span of 48 hours.
Today of course, as
predictable as it is, when last week's junk is this week's treasure the
"commodities are back" trade has arrived. This is simply not an environment I
thrive in as no trend lasts for more than a few days/or hours. So I am cutting
back and raising more cash until I can see any sort of trend. I still have no change in my long term belief in commodities, especially agriculture, but until
some pattern emerges that lasts more than the blink of an eye, I am going to
simply reduce exposure to everything.
I try to invest on fundamentals and use technicals for timing entries/exits to some degree. Right now fundamentals mean nothing, and only quick in and out trading works for any sector. This is not
an environment for me to thrive, so I am going to ratchet back for the time
being. I feel like a person in a cave without a flashlight right now, so the best
thing to do is to raise cash and reduce exposure everywhere - even in positions
I favor the most on fundamentals.
Today I took off some:
- Kinross Gold (KGC)
- Silver Wheaton (SLW)
- Mosaic (MOS)
- Potash (POT)
- Powershares DB Agriculture Fund (DBA)
- Foster Wheeler (FWLT)
- Mechel (MTL)
- Arch Coal (ACI)
- Peabody Energy (BTU)
At this point, with (in my opinion) no rhyme or reason, I'd rather miss part of a move up and have more safety. This is the strangest market I've ever encountered and the level of strangeness since the Invisible Hand went from invisible to visible has increased by a degree of 10. Until fundamentals are rewarded once again, I'm going to pull back on risk to some degree - and try to remain hedged. Right now it "feels" like hedge fund liquidations make more difference in a stock price than any sort of fundamentals.
I don't believe in a "2nd half recovery" (although I am open to a double dip recession based on rebate checks) so it is hard for me to buy financials or retailers up 30% from their bottom last week, and the stocks I do believe in are sold off every time the dollar drop 0.0004%. So I don't have an easy path right now on the long side. If I see some better technical action in the stocks I like the best I will reapply some exposure...
Maybe my mood will change and some great awakening will awash over me (or my Magic 8 Ball will show me the way) in a few hours/days but for now I am simply perplexed and that's not a way you want to invest. Just being honest; I don't have the answers all the time - only 99.7% of the time. We are now in the other 0.3% of the time.
I've moved cash up to 21.5% at this point.
Disclosure: Long all names mentioned in fund; long Mosaic, Foster Wheeler, Mechel in personal account
This article has 12 comments:
In any case..those of us who aren't in a tizzy suggest that investors keep SLW and BTU...and certainly add CDE..which will..in spite of recent difficulties..be the star performer of 2008. Good luck with your funk....
Having made my basic point, it is clear to me that this is basically a great time to be in Agricultural stocks and the near and two year horizon looks very favorable and relatively predictable for the industry. The investment and market dynamics of metals commodities with agricultural commodities are quite different, and one’s investment strategy should reflect those differences. The Bottom Line is that there are a host of Agricultural related stocks that offer great safety and great upside, for near term and long term investors.
Mvestments
Right on! I appreciate your honesty! Anyone that says they have a "handle” on this market is a liar. Thank you for your honesty and sound advice. I do however; also believe that the agriculture bull run is still in tact. I have been adding to POT, MON, and MOS on pull-backs and I also have a close eye on BG. I did lighten up a bit today just to lock in some profits, but I will add more on any pull back. I work in the agricultural industry and I see no near-term end in sight. I believe that it is driven by a world wide shortage in food rather than the ethanol sham. Obviously ethanol added to the hype originally, but if you ask anyone who actually produces corn ethanol or people who work in the ag industry, it is well known fact that the corn ethanol thing just doesn't work. It takes more energy to create than it is worth. There is no question that the price action does not reflect the fundementals. Thanks again, some of us appreciate your insight.
As if I care.
Will there be volatility? For sure. You need to see past quarterly returns and look at the larger long term picture. With oil heading well north of $100 a barrel and food prices soaring while shortages are beginning to emerge, you can bet we will see higher prices in the long run until we decide to "renegotiate"... our current standards of living to accommodate a world with less to give.
My cutting back is simply 5-10% here or there. Mosaic has been my top position 90% of the time (when Ultrashort Financial has not been) the past 4-5 months.
It is not an abandonment of the thesis; simply a statement that the thesis was being ignored last week. Nothing changed fundamentally last week either but the price levels dropped off the cliff. Nothing changed in early to mid January fundamentally but the prices fell close to 40%. Etc. Simply a statement on the market's bipolar nature not a change on the long term fundamentals. I'm the first defender of the ag trade every time I hear it's over - you can see me posting about the coming potential famine conditions we are creating for the world's poor (and middle class in poorer countries) every week.
I was in there buying in the selloff last week, I just lightened up some early this week on the first bounce in case more "hedge fund liquidations" ensued. So far they have not... it would be a nice market when hedge fund liquidatations and Fed actions meant less, and fundies meant more... thats my main commentary here.
Thanks for your comments, all.
Gorski
I hope you never sold stocks for less than what you paid for them, if so, you are playing into the day jiggers hand. Commodities will rise sooner than later. Most of my oil, gas and metals stocks are below my buy in price, which means I take a well deserved rest until they rise. The days of long sellers is long gone so play the short game.