Previously you have seen commentary on my blog about the market. I felt it was time to revisit the issue. Our last discussion was about $100 a barrel oil. Funny how it feel short of the actual issue, which became $147 a barrel oil. Now with oil lurking back around $60 we can further examine the incredible impact that very rich and powerful 30 somethings can have on the financial markets. There are several reasons that the market is in a tail spin however we need to focus on the impacts of the rescue packages to determine where to invest going forward.
The markets rapid decline is indicative of how leveraged the various hedge funds and other investors were. By this I mean that they were able to make investments far in excess of the capital that they actually had on hand. When the market turns against them they must rapidly unwind their trades and liquidate securities regardless of what the price is. This is another clear indication that the forces working on the price of oil were not simply supply and demand but people speculating in the energy markets and driving the price of the futures contracts up higher and higher despite them never actually taking possession of a single barrel of oil.
My call on oil is that it ultimately see the mid-$40's per barrel before now and the end of the first quarter of 2009. The traders still trying to bid up the price of oil are grasping at a defunct reality and the fact of the matter is that the slowing global economy has massively decreased the overall demand that we have for the commodity. As more and more hedge funds face forced liquidations as nervous investors ask for redemptions, further activity will be forced in the oil market to push the price down. Further, the traders on the short side of the oil equation will reap the most rewards on oil's demise as i think it is still about 25% overvalued. So my call is oil at $45 a barrel before it stabilizes. For that reason I also suggest being short oil and oil services companies. There is no way that they can sustain record profit runs on cheaper oil and disappointing earnings reports will be factored into models and investors will take a good chunk out of the likes of Exxon. My call is Exxon at sub $50 per share by start of second quarter next year. The shorts here will benefit greatly.
The real area that investors need to be focused on right now is inflation. No, I am not crazy, but inflation is inevitable. The equation is simple. The US government just pumped an unprecedented amount of liquidity into the marketplace in the form of the TARP. If you include the green backs exported to foreign economies, it is roughly $1 trillion. That money will have to come home to roost in the future and it will come here. In times of high inflation people must get out of fixed income securities and move into things like gold, the traditional hedge against inflation. Then believe it or not, real estate, will provide convenient cover as well. The ugly, untold secret of the TARP is that by next year at this time, interest rates will begin to climb and that by middle of 2010 the feds will have to rapidly raise interest rates to cool off the economy. My call on this is gold, gold, gold. I suggest buying gold now and riding it all the way up. We will see gold back at around $1000 an ounce over the next few years so getting in in the mid $700's will be profitable.
Another call I want to make is the financial industry. I feel that the business is completely over sold and there are really unique buying opportunities here. For those of you that are not individual stock pickers, the XLF ETF (exchange traded fund) is a good place to be. I have been buying XLF for a few months now and suggest it for the foreseeable future. For those that are looking for some individual stocks to buy, my recommendations are BB&T Bank (BBT), Bank of America (BAC) and Citigroup (C). Both have significant recovery potential after being oversold.
In the currency arena, the might US Dollar is the place to be. No question about it- the United States is going to have power the world out of this slow down and the world will continue to put its faith in us. This is still comforting to know. So people should be long the Dollar and short the Euro and the Pound. My predictions are that the Euro will fall back below parity with the US dollar. My target is that one Euro will buy about $0.95. Further the Pound Sterling will continue to weaken as well. My target for the British Pound is $1.25 to the pound before things stabilize.
So there you have it. Some predictions for the next 24 months. In summary, be long: banks, the Dollar and gold. Be short oil, oil companies, the Euro and the Pound. We'll come back in a few months to see how we are doing with these picks. Have a different opinion, let me know. Make a bundle on these calls? Let me know as well.
The markets rapid decline is indicative of how leveraged the various hedge funds and other investors were. By this I mean that they were able to make investments far in excess of the capital that they actually had on hand. When the market turns against them they must rapidly unwind their trades and liquidate securities regardless of what the price is. This is another clear indication that the forces working on the price of oil were not simply supply and demand but people speculating in the energy markets and driving the price of the futures contracts up higher and higher despite them never actually taking possession of a single barrel of oil.
My call on oil is that it ultimately see the mid-$40's per barrel before now and the end of the first quarter of 2009. The traders still trying to bid up the price of oil are grasping at a defunct reality and the fact of the matter is that the slowing global economy has massively decreased the overall demand that we have for the commodity. As more and more hedge funds face forced liquidations as nervous investors ask for redemptions, further activity will be forced in the oil market to push the price down. Further, the traders on the short side of the oil equation will reap the most rewards on oil's demise as i think it is still about 25% overvalued. So my call is oil at $45 a barrel before it stabilizes. For that reason I also suggest being short oil and oil services companies. There is no way that they can sustain record profit runs on cheaper oil and disappointing earnings reports will be factored into models and investors will take a good chunk out of the likes of Exxon. My call is Exxon at sub $50 per share by start of second quarter next year. The shorts here will benefit greatly.
The real area that investors need to be focused on right now is inflation. No, I am not crazy, but inflation is inevitable. The equation is simple. The US government just pumped an unprecedented amount of liquidity into the marketplace in the form of the TARP. If you include the green backs exported to foreign economies, it is roughly $1 trillion. That money will have to come home to roost in the future and it will come here. In times of high inflation people must get out of fixed income securities and move into things like gold, the traditional hedge against inflation. Then believe it or not, real estate, will provide convenient cover as well. The ugly, untold secret of the TARP is that by next year at this time, interest rates will begin to climb and that by middle of 2010 the feds will have to rapidly raise interest rates to cool off the economy. My call on this is gold, gold, gold. I suggest buying gold now and riding it all the way up. We will see gold back at around $1000 an ounce over the next few years so getting in in the mid $700's will be profitable.
Another call I want to make is the financial industry. I feel that the business is completely over sold and there are really unique buying opportunities here. For those of you that are not individual stock pickers, the XLF ETF (exchange traded fund) is a good place to be. I have been buying XLF for a few months now and suggest it for the foreseeable future. For those that are looking for some individual stocks to buy, my recommendations are BB&T Bank (BBT), Bank of America (BAC) and Citigroup (C). Both have significant recovery potential after being oversold.
In the currency arena, the might US Dollar is the place to be. No question about it- the United States is going to have power the world out of this slow down and the world will continue to put its faith in us. This is still comforting to know. So people should be long the Dollar and short the Euro and the Pound. My predictions are that the Euro will fall back below parity with the US dollar. My target is that one Euro will buy about $0.95. Further the Pound Sterling will continue to weaken as well. My target for the British Pound is $1.25 to the pound before things stabilize.
So there you have it. Some predictions for the next 24 months. In summary, be long: banks, the Dollar and gold. Be short oil, oil companies, the Euro and the Pound. We'll come back in a few months to see how we are doing with these picks. Have a different opinion, let me know. Make a bundle on these calls? Let me know as well.
Posts
No comments:
Post a Comment