Thursday, February 7, 2013

Seeking Alpha Follow-Up; Jim Rogers Shorts Treasuries

A second article, on gold/GLD, has been published on SA:

I picked GLD for a general readership.  My preference is either for physical or for a true physical fund, basically PHYS, the Sprott fund that allows Americans to get capital gains treatment; no other fund has this capability.  Thus gains in GLD etc. get treated as commodity gains.  In any case, the longer-term bull case on gold looks better to me than it has since mid-2011, though as restated below, times are unusually uncertain.  Gold has no short-term momentum behind it, so this is not a "wild bull" piece, more of a statement of a bullish bias toward the asset versus the USD and other USD-based investment choices.

I am in the process of getting links or notifications in place between SA and this site.  My daughter who lives down the street from us just had a C-section and a healthy baby, and I've been busy with other mission-critical things, so -- everything in its time.  It's gratifying to start that relationship.  I think that SA has potential and that it might be attracting a better class of writers; likely that's their goal.

I published a thematic article in which the message was "gold on hold, buy munis" piece at The Daily Capitalist in September, 2011 around the current gold price but at much higher muni bond yields.  This was a good call.  Gold has gone nowhere even though stocks have caught up and QE is now underway in a huge way.

I now reverse that muni call and think munis are at best a hold, or a sell-- the fear factor is finally gone from munis.  Though some California zero-coupon low-investment grade tax-exempt munis-- a very special niche, to be sure, yield much more than Treasuries and may still see some nice price appreciation faster than the yield implies.  And given how I feel about stocks "for the long run", I also took some spare cash and purchased a small odd lot of Illinois GO's maturing in 2016 at a pretty decent yield for the times we're in.  The reasoning was the the President is not, not, not going to let his home state default.  I think that Illinois GO's are money-good for a while.  It's sad that investors are reduced to scrounging for 100 basis points of yield, but as Charlie Munger said, we have to suck it up.

And actually, per today's topic, Treasuries are beginning to finally be looking like the tail end of a bear move, though perhaps they have some more upside potential in yield even if lower yields await (though the structural bull market may or may not be over).

One reason I say this is the following headline in BBG (LINK):
Jim Rogers Joins Bill Gross Warning on Treasuries
Much as I have enjoyed reading Jim Rogers' travel books and have followed him into investing in Russian ETFs (a modest exposure, to be sure), he has been the single best contrarian indicator on the movement of Treasuries I have seen over the past three years.  It seems to me that the time to short Tbonds is when stocks have been pummeled and the VIX is high.  Even Jim Rogers has to pay the broker its call money to short a security, and he is out the coupon.  So on an annualized basis, perhaps he's out 6% or more just to short the long bond.  Who needs it?  Why not just go long silver if he's so confident that price inflation is going to accelerate?

The other reason I'm sniffing at least a rally is that, finally, the speculators are shorting them on the futures board.  Now we will just have to see how the politicians handle things in DC, and how the real economy appears to perform, and whether Europe actually finally suffers an extreme event or actually starts healing for real.  These are unusually uncertain times, and thus I'm not trading much or initiating new positions.  Is the long-term secular bear market in stocks actually ending, or resting?  Could be, you never know.  Or are we due for a third crash?  Could be, you never know.

Bill Gross, OTOH, has not been much of an indicator either way.  Sometimes he's right on interest rates, sometimes he's wrong-- at least in his public pronouncements.  But sometimes he's talking his book, and sometimes perhaps he's trying to move markets a bit so he can trade against the market.

For want of a better valuation metric in today's very strange markets, I'm happy to use Value Line's time-tested and self-adjusting algorithm.  Based on that, and based on a mediocre Q4 earnings season and higher interest rates than at year-end (a negative for stock prices in their equation), stocks are ahead of themselves at best. (Their average projection for the Dow for 2013 was 13,440; that would be lower now given higher yields.  Thus a correction to 13,000 would make sense to their computer even in a non-recessionary situation.)

I am also researching RyanAir (RYAAY in the US), the Irish airline, which is the European version of LUV (Southwest Airlines).  Here is a LINK to the max timeframe chart.  To a nerd like me, this chart is a thing of beauty, not necessarily for a short-term trade, but on a longer-term basis.  The agreement with SA is that the articles are unique, so I won't say more now.  If any readers have personal experience with the airline or if you have thoughts on it as an investment, please comment.  I have not solidified my thinking on it.  It just announced a bang-up quarter and analysts raised out-year earnings estimates a lot, so it appears to be achieving strong operational results.

Over and out for now.


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