Last summer, I embarked upon a series of three posts explaining why I was committing our funds substantially into a weak dollar set of investments; click for links to the first, second and third of the series, which delineated three ways to invest on that theme: gold, silver, and foreign currencies. I also wrote favorably of stocks, with emphasis on those with substantial international exposure.
All these investment classes have done quite well.
I believe that for a multi-month horizon, it's time for a new paradigm.
As might have been expected given an economy that merely had a growth slowdown last summer and fall and then rebounded on its own in association with a simultaneous huge injection of government spending "paid for" by newly-created Fed "money", there has been a massive speculative top in silver a week (plus) ago, wild speculation in certain "Internet 2.0" stocks, such factors as the one-sided coverage of this past Friday's employment reports (with the media mostly ignoring the negative household survey in favor of the positive establishment report), the increase in new unemployment claims, the return of the Consumer Comfort survey (now a Bloomberg report, formerly ABC News) to near-2009 lows, and (last-not-least), the reported double dip in housing. The stage is set for another growth slowdown at best, eerily similar to that of last year, but perhaps ending worse.
The major reason I am reversing the summer 2010 decision I made to go heavily into the "risk on" assets is, however, seen in the video linked to HERE. This should be seen in conjunction with the charts on the left side of the current home page of the Economic Research Institute (which may change).
ECRI raises the possibility of a global industrial recession, and the likelihood of a significant deceleration of industrial activity. It is the second derivative of growth that traditionally most affects markets, meaning unexpected acceleration or deceleration away from the prior trend.
Given where market prices are today compared to where they were when I wrote the above articles, it's risk off in the DoctoRx investing world. Anybody who monitors bloggers and other commentators who complain about Comex "hits" on virtuous silver buyers may wish to consider that silver was roughly $20/ounce when I wrote my linked piece.
For those familiar with investment lingo, last week I sold in May and went away. The only significant non-bond, non-cash assets that remain in our portfolios are gold and some public but illiquid undervalued equities, which I have hedged with short positions in more liquid investments which may be fundamentally worse values. If ECRI is correct, the only weak dollar hedge one needs is gold.
None of the above represents a short term timing call in any way, shape or form. After last week's carnage, my trading sense would suggest that silver and oil, for example, are due for a bounce higher in the upcoming week. It's also not a bear call on stocks per se, given that many stocks are "defensive" and given that capital rightly continues to seek alternatives to cash.
Much more to follow as the Obama deficits continue to meet Helicopter Ben.
Copyright (C) Long Lake LLC 2011