Thursday, January 8, 2009

Idle Musings : Next Boom and Why ....

Last couple days have been pounded by acquaintances that want to know what I think.

Mind you, I'm not a trading guru ... in fact I don't trade at all.

My investment strategy has been to opt-out, stay in cash and wait for what I believe will be the fattest pitches that will ever come cross the plate this generation.

My teachers in this regards? Fine folks like James Grant, Bill King, Marc Faber, Bill Fleckenstein... to name a few.

Don't believe in shorting because I see it as an asymmetrical trade. The upside is double (goes to zero) and the downside is infinity.

Waiting for a stock market bottom, you can search previous posts as to what I mean by that, simply put I'm looking for a cycle low per historical standards.

Anticipate that this bottom will include a cycle high for sovereign debt. In the neighborhood of 1.5% (Rosenberg's call) on the 10 year.

Taking long-term positions in appreciating equity ETFs and depreciating treasury ETFs will be rewarding (if these cycle extremes are met). Also following some recommendations that Jim Grant made on bonds in December, HYG, LQD, JFR & CALBX. Might pick at them if they go back to their recent lows ... right now trades seem to be crowded (doesn't mean that they will retest) but will say that whilst Citizen Grant is almost always right (his AIG call notwithstanding) he is most always early.

Too boring I know ... everyone wants that three-bagger and that five-bagger. Where oh where might they come from?

Here's my current thought and I'll expand upon it as time goes on. The next boom? Looks like commodities. What is most attractive here is that a back-breaking further commodity collapse due to a new wave of deleveraging and dollar strengthening seems quite possible.

Furthermore it seems like all the animal spirits are herding into the regulatory trade (bite the Hand or be the Hand) and there is nothing more critical to the system then low sovereign yields in order to finance our crushing debt. Here we have an advantage over Europe in that we can devalue our currency and as our offerings crowd out all else, appreciation due to currency devaluation will give us a competitive yield advantage.

If this script plays out, it will blow the flippin' roof off the commodity complex.

Aside from that, fundamental analysis will be able to ferret out individual speculative equity plays at the cycle bottom ... when or if that occurs BLUE HORSESHOE will give you a heads up.

Until then my investment strategy continues to be the mendacity of hope and the urgency of not.

If I am wrong I lose only opportunity and not capital.

Regardless, I beat Buffett like a rented mule in 2008.

That kinda feels good.

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