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.
Well, it was a sucker’s rally. The DJI is down 294 points a few seconds before the close. I used this opportunity to sell my shorts (SKF +2.91%, FXP +15.37%). I think holding SKF is a bit risky in the short-term, I agree with Jim Rogers, chairman of Rogers Holdings, on that, who believes that we might see a short-term rally in financial stocks in the short-term given the actions of the Fed and the reasonable earnings announcements from the Wall-Street heavyweights and their reassuring propaganda that everything is fine.
What was really interesting today was the action on Gold, IAU was almost down 4.5% in one day, and I think I’ve never seen this in 1 year of investing, so I used this opportunity to scoop up a little IAU at $92.44, but not too much (about 7% of my portfolio). Gold actually went up slightly towards the end.
I kept my Yen and I’m looking to buy more shorts, but on general market indexes, not specific sectors like Banking/Finance.
Before I start my comment on the day, I wanted to say that I should have probably waited Monday to close the positions I closed Friday. The Bear Stearns crisis drove the Yen, Swiss Franc, Euro, Gold and shorts financials to new highs. But who could have predicted this! Jim Cramer actually recommended Bear Stearns last Monday – What a joke, this show.
As for today, another spike (DJI +420.21) that MacroMan was prudent to not qualify, hesitating between calling it the latest sucker’s rally or as the short-term bottom. As far as I’m concerned, it did not convince me, and it offered me the opportunity to buy some SKF (-15.42% today) and FXP (-9.26% today) and some FXY (-2.19% today).
My portfolio is about 60% USD cash, 15% Yen cash, 20% stocks, and about 5% shorts. My YTD performance is 4%.
Gold (IAU) was down -2.76% today, which is probably explained by this part of the Fed statement:
The Committee expects inflation to moderate in coming quarters, reflecting a projected leveling-out of energy and other commodity prices and an easing of pressures on resource utilization.
I tend to share this opinion, although the main reason for the drop today is most likely the momentary lapse of reason of the markets that this 75pts cut will bolster confidence in the U.S. financial system’s ability to absorb the current crisis. Nouriel Roubini agrees with the idea that Gold price will be under pressure in 2008 as a result of the recession’s reduction of long-term inflationary pressures.
As a result, I will adopt a wait-and-see stance with regards to Gold in the short-term. By the way, a chart I like to monitor.