After going to some 60% cash in early January, I’ve taken a seat high up in the bleachers to just watch the action and try not to get too involved. As I keep hearing, and have been trying to do, patience is your best trading skill in a market like this. If you’re not a great swing trader (I guess I’m ok, but its not gonna be how I make my name), then its probably best to take it slow and not throw everything at the momentum names like Apple (AAPL) last year. I’m not particularly a big fan of Warren Buffet, but yes, maybe it is time to go to Buffet style this year as we meander around and frustrate short term players. Even the fact that Warren himself has come out to play, getting involved with the bond insurers and becoming the biggest share holder in Kraft.
I do not believe the worst is over. Even as the banks’ writedowns keep coming in, I’m still waiting for the Armageddons that’s the $2 Trillion aggregate damages related to mortgages and CDOs Annaly (NLY) CEO Mike Farrell has estimated. With under about $200 Billion in writedowns and borrowings from the Fed’s TAFy auctions, we still have a ways to go as you can see. Having said that, these go-nowhere days are great for doing homework. I’m going to pick at some of my long-term investments on today’s rather bullish action so far (bullish because I would’ve expected us to be down much more on the inflation data in the CPI and the breakdown of another private equity deal between 3COM and Bain Capital).
1. MO - building up this position to be the largest holding in the portfolio head of the breakup of the domestic and Philip Morris International businesses and the opportunities that comes with, including increased buybacks, dividends, and realization of extraneous assets such as Altria’s 28.6% stake in SAB Miller. No question in my mind that the Fed’s excessive rate hikes have put the U.S. into a recession, which makes defensive names like Altria great right now.
The Fed raised rates to knock down inflation, which has been caused by international growth not U.S. growth. I guess the Fed is finally finding out that it’s “broad hammer” tool of interest rates hammers the U.S. much harder than the rest of the world. So, global growth continues, commodities continues to rise, and the U.S. has to deal with stagflation where inflation continues because the rest of the world keeps growing and Americans have less money to buy the inflated goods because the economy’s weak, their houses are worth less, and their retirement funds have shrunk.
2. PCU - So, I’ve taken a starter position in PCU with the intention of building up a larger position. U.S. home construction has been nonexistent and thus a non-factor in copper prices. Manufacturing activity has fallen off quite a bit in the U.S., yet copper prices are again trying to take out that $375 mark (as pointed out by Helene Meisler on RealMoney.com today). Also, China’s determination to keep Rio Tinto out of BHP’s hands tells me commodities are still in short supply, or so says those in charge of the country…who I’d say are much much smarter than me.
3. POT - Same here. Higher commodities are here to stay. If you saw how the CEO was salivating bullishness on Fast Money last week, you’d want into this stock too. I’m taking a starter position and hoping this thing pulls back, although it’s just tapped another all-time high and got legs to go higher. The interesting point that the CEO made was, once the rising middle class tries meat as a source of protein, they never go back. But as I learned in h.s. biology, it more energy efficient to have a vegetarian diet than to feed those crops to livestock. In other words, higher demand for meat requires a lot more crops, and thereby requiring a lot more fertilizers as well as farmland (bodes well for Deere still).
4. PCP - Boosted this position to a meaningful size as orders for the 787 Dreamliner as well as smaller planes keep coming in. I thought we could see another big drop in 787-related names, but I’m not so sure now so I want to at least have a good stack of PCP. Boeing’s nearly finished with another 787 for testing purposes, and have 2 more on the way, so demand for PCP’s products aren’t going to fall off as sharply as if the whole production was on hold. Also, China building a power plant every 2 weeks certainly helps the demand for high-performance metals.
5. UNP - Coal on fire? (no pun intended) Got to move the coal to the coast somehow so they can be shipped to China. Same with the ag story and moving fertilizers to the coasts. See how nice the world starting from the U.S. coast and beyond looks? Already had a position. Building it up.
