What I'm Doing These Days

I haven't posted anything in half a year. When I opened this blog I promised silence in case I've got nothing to say. Still, my portfolio and thoughts have evolved during the spring/summer. So here's a summary of what I've done, what I think, and what I plan for the future.

Recent Portfolio Activity

After shorting Citi and a few other stocks in February, I took it easy until I saw the potential for a rise in stocks. The combination of widespread panic and impending good news (PPIP, stress tests, mark-to-market changes) made me think a bottom is close, which I played by buying calls on OXM. The market turned a few days later. I also purchased some calls on banks which I thought would pass the stress tests and a variety of stocks. I made some profits but sold out almost all my earnings-valuation-based long positions by the end of May. So I've missed out on the rest of the rally but that's ok - chasing short-term performance is not my game.

What Now...

So now my portfolio consists mostly of a few special situations and small put option positions that expire in January (HE, COF, APOL, SPG and a few smaller ones). What do I see macro-wise? First of all, I'm refraining from low-PE stocks (or EV/EBITDA stocks) because I just don't believe we can tell the normalized earning power of most companies. The American economy seems to continue its slide toward a concentration of wealth in the hands of a few very large dominant players who, in turn, are increasingly connected to government and lobbyists. There isn't enough of a free market and America could fall behind if we continue of this path of government intervention and politically-motivated decisions. Furthermore, various other risks remain, most of which are connected with confidence in government.

Treasury Bonds and Interest Rates

So what's the deal with confidence in government? Personally, I have now become a gold bug. I believe that the entire world has embarked on a politically addictive adventure of printing money and that this must end in a crash of government bond markets, a rise in interest rates and inflation in commodity prices (especially Gold and Silver). Further, I believe there's a chance that central banking as we know it will end and that we'll see social unrest in some parts of the globe. The U.S. has a fiscal problem, Japan has a fiscal problem, Europe has a fiscal problem too. I understand the argument for deflation: banks hoarding money... cheap Chinese labour... a lost decade is what they call it. I don't buy that argument. When we talk about "banks" hoarding money, it's really depositors hoarding money. Depositors place their funds in the banks, who then proceed to hoard those funds. But if the economy stagnates for a very long time, eventually people will slowly withdraw their deposits in order to buy essentials such as food and energy. This would push up commodity prices. And no one else will replace these depositors because on a net basis the world economy is stagnating and as a global economy we will need to spend more than we produce. In other words, whether we have a recovery or not, I believe we're headed towards a day when people start to essentially trade away their cash for commodities. And just to point out something that isn't discussed elsewhere: China seems to be experiencing a reflation-bubble of the sort that the U.S. experienced in 2003-2007.

What's Next?

I will try to post to this blog, especially if I have a good idea about a specific stock. right now my best idea is for investors to take a significant portion of their cash and invest it either in investments connected with silver/gold or a diversified basket of resources-related investments. My predictions for the rest of 2009: an acceleration of pain in credit cards, in commercial real estate and in Eastern Europe. For 2010 I wouldn't be surprised to see a double-dip recession.