A number of interesting developments this week: base metal continued its rampage before pausing near the end of the week. Gold did much the same and silver still looks strong. Bond yields rose ominously to 4.96% in the wake of the non-farm payroll employment report. My portfolio registered a decent increase.
In this article, Barry Ritholtz from the Big Picture discussed how the “birth and death” model was expected to add strongly to the non-farm payroll number for the next several months, providing the perfect excuse for more Fed tightening. As the last paragraph of my previous post suggests, I’m leaning in that direction as well.
Views on current holdings
Commodities: I regard my current positions in precious metals, oil/gas, and other commodities to be core holdings. As the dollar strengthens, commodity price will come under pressure, and a correction can be expected. I’m still keeping close tabs on the precious metals. The HUI (Amex gold bugs index) reached 353 before dropping back to 345 on Friday. I may take small positions in some junior miners as a short term trade.
Bear market funds: My BEARX and URPIX are slightly positive. The short term market direction is down and the next target in S&P is probably 1245. At some point, I will consider increasing my hedging positions.
Short position in BZH (Beazer Homes): Home builders bounced strongly before the NFP report, with BZH being one of the leaders. BZH has a large amount of outstanding short positions. I have a tremendous amount of patience here, so these moves don’t faze me.
Company stock 1: I’m still looking for an excuse to sell. (This is the stock in my employer and it’s my policy not to give any details.)
Asset allocation accounts: I bought TREMX (T. Rowe Price Emerging Europe and Mediterranean fund) using my wife’s recent IRA contribution. It’s the only mutual fund with Middle Eastern exposure to my knowledge. Attentive readers should stop me at this point and enquire whether this is wise in view of the recent Middle Eastern market crash (see e.g., here). Well, first of all it is interesting to note that the Middle Eastern market has gone up by triple digits per year for three years, and nary a word is written in the main stream US financial media except for one the back page of the Economist magazine (which is actually a British publication, see link in the left sidebar). The crash, however, was front page news on Business Week. The timing is quite intriguing, coming right on the heels of the DP World fiasco (mentioned in this post), and amid a tremendous amount of anger and calls for the abandonment of US dollar reserves in the Arab world. I’m not a conspiracy theorist, so to me a coincidence it will remain. But it’s undeniable that discouraging petro-dollar repatriation is a net positive for the US bond/stock markets. Longer term however, the Arab economies have the capital as well as the population base to grow, while perceived (and real) risk in this area should continue to reward investors. That’s why I regard the recent Middle Eastern market crash as a buying opportunity.
I also rebalanced my 401(k) account at AllianceBernstein. Currently, my allocation there is 35/35/30 for US equities/foreign equities/bonds.
In conclusion, although my portfolio is up for this week, I expect some downside as the perspective of increasing rates gains wider acceptance. My investment style calls for staying put with my core positions and adjusting the hedging positions on the margin. For the asset allocation accounts, the discipline is to stay fully invested and stick to the allocation plan regardless of market forecasts.
None of the above is intended as investment advice. I have disclosed buy and sell decisions in the past, but there is no guarantee I will continue to do so in the future or in a timely fashion. While the above information is believed to be accurate, mistakes can and do occur. The responsibility for any investment decisions you make are yours and yours alone.