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Tuesday, February 22, 2011

Cash Call -- Head for the HIlls
Market Pulse
I’m issuing a cash call at this point in time – while those with more risk tolerance may consider going short.

As noted in my last missive, I’ve been bullish on the market based on an economy improving at a rate that has been higher than expected.  At this point, I don’t see a recession ahead.  However, there are significant storm clouds on the fundamental horizon that suggest a significant market pullback.

The primary argument right now for a continued bull trend is that the U.S. is a “safe haven” and that investors are “rebalancing” their portfolios to more heavily weight the U.S. and Western economies versus the emerging markets.  I don’t see this as a sustainable proposition – as one CNBC commentator put it, that makes the U.S. market the “prettiest horse in the glue factory.” 

On the bear side, here’s what concerns me.  First, we are already in the middle of a very nasty cost-push inflation squall.  On the food side, we’ve had drought-related wheat shocks in Australia, China, Russia, and the Great Plains area of the U.S. while livestock herds on down as well.  In addition, we are already in the middle of rising energy costs and with the turbulence in the Middle East, this is unlikely to abate. 

Second, the U.S. is entering the next stage of its economic crisis.  This is the fiscal policy shocks that are likely to result as some of America’s largest states face budget crises and implement cutbacks and tax hikes. Third, the U.S. budget remains out of control, interest rates are rising, and this is acting as a brake on the housing market recovery. 

On top of this, I see a lot of the underlying bullish trend in the stock market attributable to robust surges in energy and commodity stocks.  However, robustness in these sectors contains the seeds of any market’s destruction because of the underlying supply side shock implications. In moving to cash, I know I am going a bit against the grain here as some leading economic indicators continue to point to an above trend recovery.  However, the ECRI Leading Index is losing momentum and I’m trying to anticipate the effects of the post-Mubarak world we are about to enter into. 

So in such times, cashing out and sitting on the sidelines a bit is not a bad strategy.  While I will maintain my positions in my small cap biotechs and rare earth stocks, I’m mostly in cash with small shorts on both the Chinese and U.S. markets. 

As a final comment, in my last missive, I recommended buys on CLDA, EK, and FOLD.  While EK fell a few bucks on a negative legal decision, CLDA gained over 100% and is being acquired by Forest Labs as predicted.  As for FOLD, it’s a long term hold and is doing fine.

As to what’s in my portfolio: My biotech longs include: NEOP, LPTN, SBOTF, and SVNT.  My two rare earth plays are GWMGF and GDLNF.   

I’m out of TBT for now having taken some profits and will reload on a pullback down to the $36 range.  I’m  FXP (which shorts China), long SDS (which ultrashorts the S&P 500), and I’m short a sugar buyer play IPSU. If you have an interesting stock for me to run through my screens, send me an email and I’ll check it out.
8:44 pm est 


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DISCLAIMER: This newsletter is written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.







DISCLAIMER: The newsletters and blogging on this page are written for educational purposes only.  By no means do any of its contents recommend, advocate or urge the buying, selling, or holding of any financial instrument whatsoever.  Trading and investing involves high levels of risk.  The authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader.  The authors may or may not have positions in the financial instruments discussed in this newsletter.  Future results can be dramatically different from the opinions expressed herein.  Past performance does not guarantee future performance.

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