Tuesday, February 22, 2011
Cash Call -- Head for the HIlls
8:44 pm est
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.
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.
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.
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.