Wednesday, April 22, 2009


I missed the rally in the equity market for the most part.  It began when I was on vacation and ran for 5 weeks.

I am not very constructive on U.S. equities at the moment (some tech companies are tempting and I even bought some precious metals miners... though I did hedge them with covered calls).  I am waiting for a retest of the February/March lows.

I don't like banks as I think they are doomed.  I don't like retailers as I think they are doomed.  I don't like insurance companies as I think they are doomed... get the idea?  

I don't even like energy equities at these prices.

I don't like any of the non precious metals commodities until Oil firms up, and I don't see Oil firming this year... at least not above $60 to $65.

I am long Gold and Silver (I usually have these positions hedged with covered calls) and rather than equities, I am long short term treasuries and am shopping around for short to mid term corporate paper (notes and bonds).

Oil inventories continue to build, and that just ain't a great sign for the economy.  Natural Gas is in worse shape.  At some point the price will drop so far below the cost of production that an opportunity will develop... but for my money we are not there just yet.

This was from today's EIA inventory report (complete report here):
U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) increased by 3.9 million barrels from the previous week. At 370.6 million barrels, U.S. crude oil inventories are above the upper boundary of the average range for this time of year. Total motor gasoline inventories increased by 0.8 million barrels last week, and are above the upper boundary of the average range. Finished gasoline inventories fell last week while gasoline blending components inventories increased during this same time. Distillate fuel inventories increased by
2.7 million barrels, and are above the upper boundary of the average range for this time of year. Propane/propylene inventories increased by 0.6 million barrels last week and are above the upper limit of the average range. Total commercial petroleum inventories increased by 11.3 million barrels last week, and are above the upper limit of the average range for this time of year.
The last line gives me the heebie jeebies.  Imports and domestic production are down BIG - yet inventories continue to pile up BIG.  I have no idea how somebody can see "Green Shoots" given the lack of energy consumption... but what do I know.  Yes, I know you are supposed to buy when things are bleakest - but right now it feels like I am the only guy on Wall Street that sees things so bleakly.

In any event, I will be taking a position in Oil for delivery several years out at some point - just not yet.


I see things pretty much the way the writer of this article sees things... and if he and I are correct, the big banks, and many, many smaller banks, will need to be nationalized in some way.  This won't be good for the equity markets under any circumstances.  Less obviously, this will prove a DISASTER for the municipal bond market.

Many cities, are at this very moment, coming to the conclusion that the only way out for them is a Chapter 9 Bankruptcy Filing.  Municipalities in California, Florida, New York, Nevada, and Arizona will be the worst offenders - but there will be plenty of others.  The states cannot avail themselves of Chapter 9, only local governments have that option.  That does not mean you are that much more safe in state issued paper...  I will have to do some more research on that subject... and so should you, if you or somebody near and dear to you is relying on tax free muni bonds.


"Freddie Mac Finance Chief Commits Suicide"


The entire world's financial system may very well end up where Iceland is RIGHT NOW.  The probability of that outcome is a number far greater than Zero, even more probable than the low probability/high consequence outcomes people insure themselves against.  

Yours for a better world,

Mentatt (at) yahoo (dot) com


bureaucrat said...

Whatever rally you thought you missed was based on increasing stock values that were phony anyway. My co-worker sometimes laments all the worth (trillions of dollars) that the baby boomers lost in the 2008 market crash. I tell him ... they never had that money to begin with. It was all paper profit. It was all phony. Same with your missed rally.

Greg T. Jeffers said...

I hated to miss that one. I am a trader, not an investor.

Oh, well. Next time.

bureaucrat said...

If you were counting on making money on that rally, you are a market timer. :) Even the great ones, like Jim Rogers, says he is the worst trader in the world and obviously no market timer, and he made a billion dollars. The rally is supported by fantasy and is going to die. :)

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