The Shadow Stock Trader
Friday, October 17, 2008
By Horacio Marquez
Email – #26
** We get ready to keep adding positions into weakness next week
Last week we added “the market” by buying the S&P 500 “spiders” SPDR S&P 500 (AMEX: SPY), right ahead of the “mother of all short-covering rallies.” That’s right. You can tell everyone that you invested the day before the biggest rally in US history. And kept it. Why didn’t we sell at the opening, a couple of days later, when our options had doubled?
Because there’s a lot more to come ahead. The top banks are receiving some $25 billion-each! And the US government will soon be buying mortgage securities at reasonable prices, rather than at the “stink bid” levels that have no downside for buyers and take sellers for a ride. And, very importantly, the government guarantees, the actions to restore order to the commercial paper market and the massive injections of liquidity by the Federal Reserve means that banks will trust one another again. This is happening as we speak, with Libor rates dropping notably and with still much more to go. And it will happen soon.
Soon we will be getting another rate cut by the Fed, and the market talk will be at how cheap all these companies are. As Bob Doll, Chief Investment Officer of Blackrock put it this week: “people will be lamenting they did not buy more in a year or two”.
Today is options expiration, which accentuated the volatility this week. I really wanted to see how the market closed for the week and how the VIX performed. I feel gratified.
Next week, we will be putting more money to work in more babies that have been thrown out with the bathwater. The market will turn much earlier than even market sentiment and certainly much earlier than the economy. So do not get down on the bad economic news that you will be seeing in the next few months. Unemployment peaks well after the economy turns, but the market knows and anticipates this.
And next year we will see very slow growth on average for the advanced economies, but emerging economies will post 5% plus growth on average. But this is my conservative scenario, in line with the IMF’s. We can actually see a “surprise” economic rebound as people deploy capital to take advantage of these ridiculous securities and real asset prices. So hang on to cyclicals, energy and commodities and don’t let the massive forced liquidation seen in these asset classes let you down. They are all at huge discounts to fundamentals, due to the lack of liquidity of the global banking system, margin calls in hedge funds and redemptions in mutual funds.
These times are where fortunes are made, provided that you have the discipline to keep involved-pick distressed values and put up with the volatility. But this means that you should not use leverage, since intra-day volatility could take you out, right at the wrong moment.
The only major negative that I see out there coming to depress us more is the prospect for higher taxation rates on investment in a new administration. Fiscal Policy 101 would dictate that one would ease monetary, fiscal and foreign exchange policy in recession, not tighten them. But this, while it appears more likely today, is still not carved in stone, and minds and politics can change. We will see.
Enjoy and Profit,
Horacio Marquez
Current Portfolio:
Name
Current Price
Comments
S&P DEP RECEIPTS (AMEX: SPY)
$93.21
Buy
Powershares DB Agriculture Fund (AMEX: DBA)
$25.53
Buy
Oil Services HOLDRs (AMEX: OIH)
$89.79
Buy
Materials Select Sector SPDR (AMEX: XLB)
$25.75
Buy
HealthShares Enabling Technologies (NYSE: HHV)
$25.24
Buy
Market Vectors Agribusiness (AMEX: MOO)
$25.15
Buy
Energy Select Sector SPDR (AMEX: XLE)
$45.94
Buy
Market Vectors Steel ETF (AMEX: SLX)
$32.91
Buy
iShares MSCI Emerging Markets Index (NYSE: EEM)
$24.40
Buy
Vanguard Financials ETF (NYSE: VFH)
$30.59
Buy
iShares MSCI Australia Index (NYSE: EWA)
$15.10
Buy
Market Watch
NASDAQ
1462.11
0.00
SP 500
778.12
0.00
DJIA
7395.70
+178.73
As Of 5:33AM 3/18/2009
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