Today’s rally was probably a combination of bad news not as bad as usual, and the beginning of the new quarter. The day after my last portfolio update, gold continued to decline abruptly and seeing the cracks in the bull market, I used a small Gold rally I saw as temporary to liquidate my IAU positions with a small profit on Wednesday 26. I am happy I did (I should have sticked to my initial thought that the commodity bull market is taking a deep breath). I did the same with my FXY at a small loss. I have been since then ~20% stocks (mostly AAPL and GOOG) and 80% cash USD, expecting both a short-term rally in the USD and also a short-term rally in equities, explained by market participants thinking that the worst is over, or that the Wall Street crisis won’t affect Main Street as much as priced in.AAPL did well the last month and a half (+20% since the mid-February low) and I am happy to have held on. I entered at around $135 and I’m now well in the red (+10%). This is partly thanks to the general recent market enthousiasm and partly thanks to the rumors around the 3G iPhone and of price reductions of the current model. I think the latter will be a great move. I don’t understand why Apple hasn’t been democratizing its offering with entry products that more people can afford, especially at the time we are now clearly entering a slow down. I think a sub $300 iPhone will allow people with a lower budget than current owners to finally get what they wanted for more than a year. BTW, did you know that Brazil taxes 100% imported electronics, making the MacBook Pro a >R$ 10K-12K luxury almost nobody can afford.Anyway, I’m still bearish for U.S. equities for the rest of the year, but I know that bear markets don’t go in a straight down line, and that we might be experiencing a temporary bull market. As a resuslt, I am going to watch more carefully the action tomorrow and the rest of the week. SKF (ultrashort financials) was down almost 15% today, SDS (ultrashort S&P500) was down more than 7%, which tells me that it might soon be time to buy shorts again. My portfolio is up 6.5% YTD in USD, and -0.6% in EUR.
Since the beginning of the year, my portfolio has mostly be betting on a further fall of the USD (long FXE, FXY, FXF, IAU i.e. short dollar), demise of the U.S. banking system (long SKF i.e. short banks), fall of speculative markets (FXP i.e. short Chinese markets) and resistance of a few companies like AAPL or GOOG with a following of highly-satisfied proselytist buyers/users at 30%/40% of their 52-week high. Apart from these two stocks, which I have acquired recently at respectively ~$135 and ~$431, this has just been a continuation of my 2007 bearish stance on the U.S. dollar and U.S. financial system.
I’m still a long-term bear on the U.S. dollar and U.S. financial system, but I believe that this may change in the very short-term. Now that the Dollar has fallen to a 12-year low versus the Yen, and record low against the Euro, oil is at $110 and gold at $1000 (from $650 in early 2007!), I think the danger of a downward spiral is becoming clearer by the day, and many of our “leaders” are freaking out, especially when cracks are starting to appear some high-flying names like Bear Stearns. As a result, I’m expecting in the next few weeks a massive coordinated action from central banks, with the objective to support the dollar (read “desperate attempt”). I don’t think this will have much more long-term success than the last attempt by the Fed, which propped up for a day the DJI by more than 400 points and which I used to buy more of the above, but in the short-term, it may have a dramatic effect on whoever is a U.S. dollar and U.S. financial bear.
If I look at the recent attempts, which were mostly based on a “news effect”, this attempt may actually be carefully coordinated over time, in a way that maximizes desperation of dollar bear speculators and changes the pyschology of the market (there is a lot of irrationality in currency markets). Anyway, I’ve decided that I’m not willing to bear the risk of a short-term spike in the dollar value and have cancelled fully my dollar bearish positions today and I’m adopting a wait-and-see, roughly 80% USD cash 20% stock strategy (expecting good surprises from AAPL and GOOG).
Let’s see what happens.
Disclaimer: This is not an investment advice.
Since I last recommended investing in the Yen, FXY, an ETF that tracks the Yen, has increased by 4.58%, primarily driven by the unwinding of the carry-trade. Bloomberg noted that the Yen is now at its 4-month high. The Yen has broken the support level of 118 Yen for 1 USD.
I have restored my long position this morning, expecting a slide of the market indexes today in light of the PPI release and a further slide tomorrow after the release of the CPI, which I expect to be slightly higher than expectations.
In comparison, AAPL has increased by only 3.66% in the same time frame, and the Dow Jones Industrial Average has decreased by 4.28%.
I think I know now which currency Warren Buffet has been betting on.