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Posted

If I am wrong, I finish the year with a 29% return (largely due to ORH; thank you AGAIN FFH).

 

I started the year fully invested and remained so all the way through the bottom of the market.  I thought your strategy of being all cash was too conservative to start the year but you were right in the end.  You played it perfectly.

 

I sold WFC puts a few weeks ago as a means of making another 40% by Jan 2011, yet while maintaining my potential entry price at just $21.12 (And the meek shall inherit the Earth...), which is barely above the cost that HWIC paid.  The strike is $30 so I really am not counting on any further market advance to make my money.

 

Should the market correct again, you will do better.  I'm happy though with my potential return being capped at 40%.

 

 

Posted

I am not hedged against a market correction despite the fact that I think the U.S. market has gotten above fair value and is due to go down or at least trade sideways for a while.  I have a little bit of cash on the sidelines for when the correction occurs, but I am close to fully invested due to large positions in distressed companies (formerly distressed, actually) that have lots of room to go before reaching anything close to fair value.

 

In an inflationary environment what sort of assets and which companies have earnings that go up? That should be your answer.

 

I like companies with a majority of their earnings abroad -- especially those with substantial room for growth of BRIC country earnings -- and real estate (REITs).  I also like companies involved in producing energy commodities, but I'm waiting for a correction before I dive back into that market.  Hopefully, I won't be waiting forever for a correction.

 

For the long run, the Canadian dollar and the Australian dollar are good places to be for those of us in the U.S., and I am trying to do some more investigation into Canadian companies that have sales primarily in $CAN. 

Posted
I am trying to do some more investigation into Canadian companies that have sales primarily in $CAN

 

Canadian Tire Corporation(CTC-t) might be one. It is fully priced right now though.

 

 

 

Posted

Or else you can get out of the US dollar and invest overseas, which is what the world has been doing the last 6 months or so, as evidenced by the fall in USD. If and when the Fed stops printing and the USD starts coming back up you come back into the game in the US.

 

 

Australia -- few talk about it here.

 

I would not mind being stuck with Australian currency denominated assets given that I'm a dual citizen US/Australia and the place is very nice.   I nearly bought WBK (listed on NYSE) but don't understand banking well enough to analyze it.

 

 

BHP/RIO ... and maybe some junior minors like AGO.

Checkout some commercial property too; especially office space around Sydney. e.g. CPA.

 

:)

Posted

I am trying to do some more investigation into Canadian companies that have sales primarily in $CAN

 

Canadian Tire Corporation(CTC-t) might be one. It is fully priced right now though.

 

 

Just checked out the Wikipedia article on this company -- sounds really interesting.  Who would've guessed that a company called Canadian Tire was involved in so many different businesses?

 

Thanks for the suggestion.

Posted

No bloody way I would touch UK currency or real-estate other than shorting both.  I share Viking's view.  Rather than cash, however, I think my dual hedging strategy may work out reasonably well - but cash is a hell of a lot easier and may in the end be wiser.

Posted

I am personally worried because I am up 85% pre-tax this year and it came very, very quickly -- after being down beginning in early February and still down by 3% in early July. 

 

It's easy to feel manic.  It seems others are feeling better about it too.  Now... if they all feel better about it and spend, then it becomes better.  But if they all change their minds again and feel scared, then they'll drive the bid down on stocks and we're all poor and terrified again.

 

Trouble is, when we were all poor and terrified the forward potential gains looked extremely enticing in the stock market.  But now that we all feel fantastic, the forward gains look much worse.

 

Men are spending more on drinks and lap dances at strip clubs.

 

Many people simply feel a little richer after a 50% rebound in the stock market and with all the talk about a possible recovery. Citigroup strategist Tobias M. Levkovich estimates households have regained $5.4 trillion in wealth because of the market rebound.

 

http://articles.moneycentral.msn.com/Investing/CompanyFocus/Good-news-the-splurge-is-back.aspx

 

 

Posted

Hidden tax they don't see is the US dollar dropping.  The S&P is down 30% this decade - i.e. from 1999 to today in $US.  However, in $cnd or relative to gold or relative to a basket of internationally currencies, it is down well-over 50% over the last decade.

Posted

Hidden tax they don't see is the US dollar dropping.  The S&P is down 30% this decade - i.e. from 1999 to today in $US.  However, in $cnd or relative to gold or relative to a basket of internationally currencies, it is down well-over 50% over the last decade.

 

 

Mostly I'm worried about a rise in price level -- after all, I don't want to see my net worth being drawn down at an ever growing rate by a rising cost of living.  A dropping dollar will eventually translate to a rising CPI.

 

One strategy I thought of a short while ago is to buy TIPS in a margin account.  Being a government security, the margin requirements are very little so I can leverage 2:1 without worrying about a margin call.

 

Idea:

1)  start with 100% cash in a margin account

2)  deploy the cash 100% into TIPS

3)  write far out-of-the-money naked puts on companies that you would normally love to own, and make it such that you can buy 100% if you get assigned from your initial cash balance

 

This accomplishes:

1)  capital gains in line with a rising CPI from the TIPS

2)  income from volatility decay on the naked puts

3)  protection from a falling market P/E if inflation rises and market crashes  (if you get assigned the shares, the high earnings yield will give you some good earning power protection from inflation)

 

 

negatives:

1)  You can't achieve 100% CPI protection from the TIPS because you get taxed each year on the gains from the CPI adjustment

2)  Writing out of the money puts you pay capital gains taxes, whereas if you just owned shares you get tax-deferred compounding.

3)  CPI might not keep pace with the costs that matter the most to you, or government might lie in the CPI computation, etc...

 

Anyhow, it's yet another strategy.

 

 

 

  • 4 weeks later...
Posted

Who was it that once said the markets can remain irrational longer than you can stay solvent?

 

I'm looking hard at every macro hedge vehicle I can.  I like this thread and hope it picks up again.

Posted

 

I don't see any $20 bills lying on the street right now. Perhaps I have been spoiled the last 24 months when blood was flowing fast and furiously and many things got crazy cheap. Right now, I am content to sit in cash and wait. If I am wrong, I finish the year with a 29% return (largely due to ORH; thank you AGAIN FFH). If I am right, and things get ugly, let the good times roll (once again)...

 

Viking, I wanted to quote your entire post as I couldn't agree with you more.  People have made so much money in the last 6 months that they all think that they can walk on water.  I'm an investment professional and my clients are coming in begging to buy stock.  This always gives me the heebie geebies as it's all I can do to try to convince them that there is nothing wrong holding cash. Conversations about divesting take longer than conversations about investing.  Everyone is starting to reach for returns.

 

That's a bit of an aside from what I wanted to say in fact.  Myself personally the only $20 bills I see lying around are in the gold and commodities markets. Not surprising as I'm Canadian perhaps, but the way I see it, if it's priced in USD then the value is going to go up.  The USD is not what it used to be and will continue dying a slow death until it reaches a dramatic demise. I say this because it's a matter of time before foreign countries realise that it's not a reserve currency anymore in that it can't be counted on...

 

In my view this is value investing. Finding an asset that doesn't reflect it's true value and buying it if undervalued or selling it if overvalued.  Go to a 3rd world country with USD and watch them freak out over trying to get their hands on them.  My prediction is that soon many 3rd world countries won't care as much for them as the currency is devaluing as fast or faster than the local currencies.  Should this reach main street the game is over and we'll all be scrambling for gold.

 

Flight of fancy perhaps but once faith is lost, it will be lost forever.

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