Thursday, August 27, 2009

Wednesday Night Investment Update

As suggested here this past weekend, the long Treasury bond has surprised many with significant strength. The 30-year Treasury has dropped greatly- 20 basis points, down to 4.21%, corresponding to over a 3% upward move in price in the close ETF proxy, TLT. Some technicians are pointing to current interest levels as important; traders may want to lock in gains or place close stops. Given that Trimtabs Demand Index has just registered a sell signal on the stock market (was neutral) and given the fact that this move in Treasuries has occurred with no publicity and no obvious cause, I remain positive on direct ownership of zero-coupon intermediate to long Treasuries, though I'm no longer pounding the table for underinvested people to jump in here. Fundamentally, we all or almost all of us "know" that 4.2% a year for 30 years is a poor investment. Of course, if a Japanese purchased a 30-year Japan Government bond 20 years ago as the bubble was topping, he or she made a great investment.

I also remain positive on gold. Now that the Fed this weekend in Jackson Hole doubled down on its promise/threat to keep interest rates "too low, too long" in order to create inflation, I have changed my investment posture on gold from trading range-oriented with a bullish tilt, to buy and hold a significant core position, trading around it as desired. Physical gold and the two gold ETFs, GLD and GTU, all make sense.

Another reason for liking gold is the recent appointment of a labor leader with no legal, banking or economic credentials to head the New York Fed. Click here for the link, courtesy of Naked Capitalism. Click here for a link to his bio.

I also like cash. Yields vary greatly. If you trust the FDIC, it may be worthwhile to move money from bank to bank to grub extra yield.

Finally, at what should be roughly the nadir of the economic banana, there are probably solid long-term values in McDonald's. After the recent mini-sell-off, I also like FPL.

What is the theme to the above: high quality. Junk should have had its 5 months in the sun. Quality will out over the long run. Exactly when, those who lived through the late 1990s know that one never knows.

The Baltic Dry Index has come down sharply; link here for it on an ongoing basis. Chinese stocks look to be cracking, though it's not a market I know anything about. A growing number of pundits who both called the stock bear market and then the March low are very cautious to bearish, whereas other bears who stayed bearish have caved under the "don't fight the tape" theory. Yet all this is occurring during light end-of-summer trading, where the low-priced stuff such as Fannie Mae is dominating trading.

This game never ends, but when a mainstream outlet such as Bloomberg piles onto Dr. Roubini, a truly eminent academic, for no reason other than his first wrong (for now) call after what he says are five correct ones, I fear that that is a corroborating sign of too much complacency amongst the bulls.

Copyright (C) Long Lake LLC 2009

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