My Portfolio and Investment Ideas: Updated 10/11/2011


I have updated My Portfolio Breakdown and Investment Ideas.  The previous update can be found here.  I increased my Bearish Investment exposure as well as raised more cash from my Bullish Positions.

The S&P 500 is at resistance and I am taking this opportunity to further sell into strength.  Note that I intend to keep some dry powder in case we indeed break through the 1,200 area to the upside, providing a better shorting opportunity.  I understand that risk-markets may rally in the days ahead and am therefore preparing to implement some hedges, should the S&P 500 rally strongly past 1,200.

On the Bullish end, the U.S. remains in growth mode.  Recent economic data has been coming in better than expected (albeit still very weak).  The level of bearishness remains quite high and  the market may already be discounting a mild recession.  The sheer fact that we aren’t in one is bullish.  News from the Eurozone has been encouraging as well.  Merkel and Sarkozy have drawn a line in the sand in developing a comprehensive package to bailout banks and stem the contagion.  If the package satisfies investors, markets would be in a prime position to rally (hence my recent affinity for hedges).  The biggest headwind to global growth would be removed.

I remain cautious on any news out of Europe at this point though.  Officials keep saying they’ll do something, only to have nothing happen.  However, the fact that the statements came from the top of the chain of command does deserve some bullishness.  In terms of the bigger picture, I continue to be of the view that Europe’s countries are too different to agree on becoming a United States of Europe (ie become a fiscal union).  I don’t believe we’ve heard the last of the sovereign debt woes in the region.

While we have seen improving news out of Europe as of late, the opposite has been the case for China.  Increased cautiousness on the part of investors can be seen in various important indices. Copper is signaling a significant slowdown in the global economy. China is one of the largest, if not the largest, user in the world.  Deteriorating price action for the metal portrays weakness in the engine of the global recovery.  This can be attributed to growing concerns of massive amounts of mal-investment.  News of consecutive declines in home sales and toppish prices lead me to believe that the property sector is on very thin ice.  Indeed just look at China’s property index.  It recently broke through multi-year lows and forecasts a serious slump in the months ahead.  To make matters worse, the country is experiencing high and sticky inflation.  It is becoming increasingly likely that stagflation is in the communist nation’s future.  Officials will have little wiggle room to unleash another massive stimulus to support growth, not when inflation is at dangerously high levels.

Regarding the S&P 500:  From a technical perspective various important moving averages are pointing lower with the 200 day beginning to slope downward.  The long-term trend of the market in increasingly bearish.  On the bright side, the index recently sliced through the 50-day moving average like a hot knife through butter.  Also, breadth readings are firming and signals some stabilization.

I remain cognizant that central bankers will more than likely resort to continued monetary easing to battle recession, therefore I am not committing too much to shorting commodities.  As far as future investment ideas, I am considering gold; but not now due to downside risk if central policy bankers continue to abstain from strong monetary measures such as QE3 (balance-sheet expansion).  As a final note, in terms of my bearish investments, I am resorting to shorting levered bullish sectors.  Example: Instead of buying SKF (2x levered bearish financials), I am shorting UYG (2x levered bullish financials).  Call it the learning curve; the inherent roll-yield in the bearish ETFs is killing me.

My Portfolio Breakdown

+ 6%: Bullish Investments

+ 28%: Neutral (Cash)

+ 66%: Bearish Investments

My Investment Ideas

Bullish Investments

Long Alternative Energy (FAN, TAN)

Long Commodities (IYM)

Long Transports (IYT)

Long Manufacturing (DIA)

Long China Consumer (CHIQ)

Bearish Investments

ShortCommodities (DDP)

ShortS&P 500 (SH,Short SSO)

Short Consumer Discretionary (Short XLY,UCC)

Short Developed Markets (DPK)

Short Emerging Markets (EUM)

Short Europe (Short ULE)

Short Financials (Short UYG)

Long US Dollar (DXY)

Long 10-yr Treasuries (DTYL)


Report Updated: 10/11/11

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