Tuesday, August 11, 2009

Tilt Towards Risker Asset Classes.


I want to bring your attention to the Ultrashort MSCI Emerging Markets ticker EEV. The stock took off from the open breaking out thru $16.50. As my notes indicate I wish to get long 1 unit on a pullback to the $16.50 area.

In my post early today I made the following remark;

Heard from your broker lately? Betcha dollars to doughnuts he has called you more in the last 4 weeks than he has in the prior 15 months. A nice rally tends to give the "we don't pay you to think, we pay you to sell" crowd a little more giddy in their up on the phone. Funny how your broker was 'missing in action' when the market was tanking but is Johnny on the spot now. Too funny.

Well just a few moments ago, a friend forwarded an email sent out August 4th, from his broker at UBS which reads as follows;

Good afternoon.

With the S&P 500 up 24% in the last four months through July 31st, our Wealth Management Research Team confirms their base case scenario of a moderate cyclical recover in the second half of the year.

With this outlook as a backdrop, the Team continues to recommend that investors tilt their portfolios toward riskier asset classes including equities and commodities over fixed income and cash; cyclical stocks vs. defensive stocks; and corporate bonds over other fixed income alternatives.

In addition to updates on the equity and fixed income markets followed by charts to support their views, our strategists provide detailed asset allocation ideas for seven different risk profiles ranging from very conservative to very aggressive both with non-traditional asset classes and without them (14 models in all).

Feedback, as always, is welcome.


Please take note of the date of the letter. The date, August 4th, may not 'top tick' the market but it might sure come close. Gotta love the tilting of your portfolio to riskier asset classes. Unfortunately the average customer and his portfolio do not possess the same government sponsored guarantee against market risk that the major Wall St. houses do.

Rick Ackerman over at Rick's Picks had another excellent post on his blog today entitled "All Roads Lead to Deflation", which I have reprinted for you viewing ease down below.

by Rick Ackerman on August 11, 2009 12:01 am GMT

When we dropped out of the inflation/deflation debate a while ago, we asked the inflationists to wake us when the price of suburban homes reached a quadrillion dollars. Wouldn’t that be nice for the fifty million or so Americans who owe more on their homes than they’re worth! Anyway, the topic continues to percolate in the Rick’s Picks forum, including this recent, astute post from “Senor Cuidado”. Like us, the Senor doubts inflation is lurking around the bend:

Tahoe Billy, you priced gold and eggs but you left out oil. Oil is key to the U.S. economy. With gold at $3,000, what is the oil price going to be? And how are Americans going to afford the new stratospheric oil price? You also left out any interest rate prognostication. My advice is to read bloggers Ackerman, Shedlock, Denninger et al. and get a handle on the financial reality of the massive real estate bubble: No economy in history has ever inflated out of a collapsing real estate bubble because the higher interest rates that accompany inflation paradoxically depress the real estate market even more; therefore, further economic contraction and deflation are assured.

Printing Money Illegal

This dynamic is doubly inescapable in the USA because of the Fed’s creation-of-money mechanism, [the purpose of which] is to loan new money into existence. It is through debt creation that the money supply in America is increased, and there is no legal way to simply “print” money under current law. That is why there can be no inflation until all of the bad real estate debt is worked out of the system by, say, 2012 at the earliest. The bottom line is that our situation is not the 1970s all over again. The economic dislocations of the 1970s were not caused by a massive real estate bubble and a massive credit contraction; those were hallmarks of the 1930s.

All that having been said, it is interesting that evidence of Bernanke’s attempting to print directly and circumvent the Fed’s legal mandate is indeed surfacing this week. (Check out Benton’s article at Financial Sense, Chris Martenson’s article and The Market Ticker entries for the lowdown on last week’s failed seven-year auction workaround that was apparently devised by our lawless Fed Chairman.)

Consider the Lenders

If Bernanke can somehow get away with massive illegal direct printing of money, then that might be a game changer. But the scheme is not within the Fed mandate and he will probably be impeached or arrested before he can bring his plan to fruition. But I doubt the game would change very much anyway: Money printing does not instill confidence in foreign creditors. All roads lead to deflation as Ackerman has described.

The future is deflation, systemic default risk and a ~50% currency collapse, along with a strong gold price measured in dollars. But no way in hell will the DOW blast to 15,000 (why not 30,000?) with sky-high interest rates…the banks wiped out…and half the country under water on their residential mortgages. The American business community is looking at a massive reset because this is the end of the “consumer economy” and the equity markets must reflect that ugly reality.

The future will look more like gold $1500 and DOW 1500.

I agree wholeheartedly with Rick's assessment.

Good speculating and remind them to please don't ever forget that "an investor is a speculator who made a mistake and will not admit it".


Open Positions:
Long 1 unit US Gold ticker UXG @ $3.05 stop @ $2.68
Long 1 unit Ultrashort FTSE/Xinhua China 25 ticker FXP @ $10.15 stop @ $8.89
Short 1 unit Abercrombie & Fitch ticker ANF @ $31.40 stop @ $33.11

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