The financial markets are crowded and confusing. The only trend that seems to be on the rise is geopolitical risk. There seems to be new risks everyday. This is not being priced properly. The only "positive" is that the FED is continuing to raise rates so inflation wont be a problem?!. There will always be pockets of strength and weakness. Capital preservation, income, and then growth seem to be the order in my mind. There has been BIG moves in subsectors of the SPX with little movement from the index.
The AG stocks have been VERY well bid. They are rallying due to ethanol, globalization, and possibly H2o scarcity coming from China. Fast money will cause more volatility if they are viewed as alternative energy plays. PEIX CPO ADM DE BG MON POT AGU SYT are the companies I have focused on. PEIX is VERY volatile but "technically promising". CPO is more stable and could play catch up to ADM which has recently broken out to all time highs. DE is trading above 3yr highs and has raised its DVD 2-3x in the past 6 months. I plan on holding these stocks for a very long time. I originally bot them as a sidebar to H2o merits. The ethanol talk has only made them rally harder in the short term.
The H2o stocks continue to rally as well. PHO is the easiest purchase. I like the H2o utilities which include WTR (biggest) AWR CWT SWWC SJW. They should have pricing power due to scarcity and growing needs of the southwest (AZ CA NV NM). All are withing striking distance of all time highs with DVDs as well. The infrastructure plays make sense LT. PNR WTS BMI (thin) CCC (spec) LAYN (like it) CWCO (Desalinization) CLC (Filtration) PLL (take out?) This is going to be a huge oppurtunity over the next 10 yrs. Market caps are small problems are large. This is the one area of the financial markets that procrastination will lead to a real mess. WE NEED WATER. However this comes about.....exposure is not a bad idea.
GOLD remains VERY firm regardless of the direction of the USD. I have sold 1/3 of my equity position over the past 2 months. I am going to buy additional physical with the proceeds. I have to say that I was assuming a deeper correction in both time and price. The fact that GOLD continues to go up in relentless fashion speaks volumes. LONG TERM always a buy and probably short term as well. Richard Russell (Dow Theory Letters) said on Friday, "Because personally, I doubt very much whether the world will lust for US dollars fifty years from now." This is probably true. Regardless of GOLDs short term movements the LT is the more profitable path. Volatility is to be expected.
OIL is very volatile due to spec and global instability. I have been adding to QRAAX (GSCI index fund) on recent weakness. It is a call option on volatility. The retest of the recent lows
could prove a spring board which gives way to an 80 target. Upside unlimited if its caused by a disruption or continued instabilities. I like CVX (green, big cap, yld) SU (Canada) KFX (highly spec but running), and GAGEX. If OIL spikes their could be some problems for foreign oil in the hostile parts of the world. I would rather own Canadian companies then have exposure to hostile regions. QRAAX is the easiest (non levered) way to express this view.
Banks are firm is an understatement. I DO NOT have any idea what the strength in BANKS mean. It makes no sense to me. I am LONG GOLD VS SHORT BANKS. I still think the BANKS will head lower but am shocked at their continued strength. We have an inverted curve, rising rates, global instability, and a US consumer is "fully levered". If asset prices continue to rise without wage gains....well, that could create a problem. Banks will be forced to deleverage just as in prior contractions. This is the idea behind the FEDs hiking campaign. I have a hard time understanding where future growth will come from. The BKX hitting new highs should be viewed as bullish. But, the continued rise in GOLD negates the implications to neutral at best.
Retailers seem to face the same headwinds. It is a game of the haves vs have nots. The companies focused on the have nots have suffered. The housing market has fueled more growth that is currently assumed. WMT FDO DG DLTR NDN have gone nowhere since 97ish. The stimulus is behind us. This "SHOULD" weigh on the entire sector in forward quarters. I am focusing on RTH HDI CCL BBY thru options and stock. I am also keeping an eye on HET and some other gambling/casino/hotel stocks as well.
I continue to hold Asian equities and will add on pullbacks. I do not feel any region will avoid a downdraft if/when the US slows. I am willing to sit thru a correction(s) in select markets. Asian currencies seem cheap relative to the USD. I continue to hold/buy THB SGD JPY. If US slows, Asian currencies might appreciate as repatriation begins. I would rather hold currencies/bonds of countries with surplus. Asia fits the bill. There are definitely risks/concerns but no worse (better) than US. Diversification seems the right thing to do. I am weary of US bond market.
All in all I think it pays to be a little cautious. There seems to be ALOT of easily identifiable negatives which DO NOT seem to be denting markets. Wall of worry or complacency? Not sure, but cash aint trash at 4.5%.