What I Like Now

2009-09-25T17:41:00.001-07:00

Short-Term (1 day to couple weeks)
long GDX (could be med/long term)

Medium-Term (few weeks to few months)
short real estate (IYR)
short TXT
short LT treasuries (TLT)
long DFS, short COF
long AUXL, short BSTC

Long-Term - Valuation Based*
WCG
MCF
MIM
CSWC
MSFT
COWN
PRXI
ADGF
HAWK
CBMX
BUI (TSE)

*Valuation based picks. I believe these assets are fundamentally mispriced and offer great value at current prices. Those picks without an asterisk are based on theses about growth, technology, market dynamics, macro trends, etc.

Long-Term (few months to few years)
long NG, short crude
VRTX
MELI
AAPL
EXH
F
BYD (1211.HK) (like the company, stock probably overpriced though)
short U.S. equities
short WFC
short YHOO
short home builders (XHB)
short ratings agency (MHB, MCO) (this trade is getting crowded)

Macro-Term (many years)
dollar decline as loses reserve currency status
Treasuries down as rates increase (as they almost certainly will)

Disclaimer: I don't know what the fuck I'm talking about, so if you buy/sell any securities based on these picks, you're an idiot.

Chart: Employment Change in Post WWII Recessions

2009-09-08T19:58:00.000-07:00

From Mish's Global Trend Analysis.

Looking at the "Big Picture" with Vince Fernando of Business Insider

2009-09-08T19:07:00.000-07:00

My response to the deep market analysis over at Business Insider.

Hey Vince -- Your analysis seems to make sense, but then any qualitative description of a quantitative situation can seem sound if it completely ignores the numbers.

Some might disagree that things are "less bad" and have "improved", considering that unemployment has risen by a couple million people, underemployment has risen by a few million more, real estate prices are still falling (and thus lower than when things were "more bad"), consumer credit defaults and foreclosures are rising with no end in sight, and deflation is upon us more and more with each passing day.

But let's say you're right, and the economy really is "less bad"... Except now we have to deal with those pesky numbers! So let's see... we were at 666, and things have improved... so should we be at 700? 1000? 1500? According to your binary worse/better thinking, 700 and 1500 are equivalent: both better than 666.

Of course, those of us who think that numbers matter in the financial markets like to take current prices and compare them to: (1) historical data, and (2) prices of other asset classes (you know, that fancy stuff like corporate bonds and treasuries and whatnot). Since it's hard to see the forest when you're standing among the trees, the only way to see the "big picture" is to look across time periods and asset classes.

Starting with #1, a quick history check reveals that, by almost any metric, the current market is EXTREMELY overvalued, and in the past similarly high valuations did not stay buoyant for long. In fact, excessive valuations like the current are quite predictive of significant declines in the not-too-distant future. (History also shows us that sometimes the perceived improvement is just temporary or even an illusion, which is easily missed if the data is not CLOSELY examined.)

And #2: Equities are currently pricing 4-5% annual GDP growth over the next few years; a "V for Victory"-shaped recovery. Possible? Anything's possible. Likely? Definitely not. In other words, all the good news is already priced in, and then some. (Corporate bonds, on the other hand, are pricing 1-2% GDP growth, and even that may be optimistic.)

So when we quit playing logic games and actually look at the numbers, it seems very likely that the market is fundamentally overvalued to the extreme and, barring a meteoric recovery, will likely fall. When? Could be next week, could be next month, could be next year. The market can stay irrational for a long time, but eventually the fundamentals always win, and their victory is often accompanied by panic.

The risk of downside is great, but just as importantly, the fact that the market is already very, very expensive (by both historical and relative standards) - and is already pricing in a very, very optimistic future - means that the potential upside is rather limited. In other words, in a market this expensive, the market is far less likely to continue rising, and any potential gains will probably be limited.

Even if the economy is "less bad", does it make sense to buy into this market?

Did it make sense to buy into the stock market in December 1999? Did it make sense to buy a house in 2007? Depends if you're looking at your "big picture" or mine.

the Scrilla Gorilla

What I Like Now

Chart: Employment Change in Post WWII Recessions

Looking at the "Big Picture" with Vince Fernando of Business Insider