Author: Tom Yorke, Oceanic Capital
Covestor model: Global Diversified Conservative, Global Diversified Aggressive and Global Diversified Moderate
Disclosures: Long GLD, UUP
The current style of trading is often described as “risk-on or risk-off.” It reminds me more of The Karate Kid movie than a way to run a portfolio. The “on” versus “off” is basically as random in nature as the decision to wipe your floors one way versus another. The fundamentals seem to have taken a back seat and something wacky has taken over.
The Euro continues to climb (or at least stabilize) at levels that seem too lofty to justify. It’s well documented that Greece has one foot in the grave and another on a banana peel. The EU can hardly afford a single default – much less all of the PIIGS – yet everyone is playing a game of chicken that seems likely to be won by Greece at the expense of Northern Europe. Do the Greeks really care that they have borrowed so much money that they can’t conceivably pay back? We would hope so, but I am left with the feeling they just don’t. We are just SURE they will vote themselves into a life of austerity in order to protect their Euro-pals. (Right!) What do they say about fighting with someone who has nothing left to lose? It’s just generally not a good strategy.
The dollar devaluation trade has received a reprieve from the Governor, and now the dollar seems to occasionally get its day back in the sun, but is this the start of something new? Perhaps, but lately I think the dollar is just the easiest girl at the party. Although I prefer not to make any real bets here, I am not tempted to abandon our Dollar Bullish Index (NYSE: UUP) trade, keeping it as a flight-to-quality hedge.
NEWS FLASH: Housing and employment still stink. I do believe, as others have pointed out, the strategy of consumers using their home equity lines like a checkbook is dead and gone for some time to come.
OUT: He who dies with the most toys wins.
IN: He who can afford to retire, ever, wins.
This suggests that Wal-Mart (NYSE: WMT) shoppers will be out in droves and we therefore like the looks of that boring stock. It’s a dividend grower and a category killer, which should serve an equity allocation well.
The most recent employment numbers have been well covered. In our view the takeaway is this: Until we see some realistic thinking out of Washington, who would be crazy enough to torture yourself with massive regulation, medical expenses, and plain bewilderment to hire anyone new? The future is as clear as mud and the politicos BS us all about balancing the budget by taxing the wealthy. It just doesn’t make sense. We end up forcing the job creators to the sidelines. he way to balance this budget is through a growing economy with more tax paying average Joes, not some drivel about the rich not paying enough. They already pay the lion’s share anyway.
Here’s the bad news: the Boomers (the “Entitled Generation”) still rule in the voting booth. And the recession wasn’t harsh enough to erase their sense of entitlement. So changing Social Security, Medicare and other such programs – the vast majority of our non-military spending – is a politician’s prescription for not getting re-elected. No self respecting pol (what other kind is there?) is going to do that. So you can forget about hard choices being made, certainly before the 2012 election. Won’t happen. The 800-pound gorilla will get bigger, nastier and harder to control. (Start begging your kids’ forgiveness now.) As they say, the can gets kicked down the road again, until all the current politicians get the world’s best retirement package lined up. The current crop of college graduates might be the first to actually have a lifestyle worse then their parents, and certainly their wide-eyed dreams will get a serious realty check. The help at the Gap (NYSE: GPS), McDonalds (NYSE: MCD), and Wal-Mart might break records for the number of college degrees.
So what do we like besides Wal-Mart? We still like the dollar, not because it’s strong, but because it’s less weak. We’re skipping the Euro and the Yen. We like some raw materials, especially those supplying the construction industry in China and India. The Canadian oil sands industry is starting to get interesting with the current oil weakness, and we remain poised to add some SPDR Gold Trust (ETF) (NYSE: GLD) on any significant pull back. As always, we like “category killers,” those companies whose position in their markets is without peer, Wal-Mart being a classic of this sort.
These are themes we will paying attention to when we rebalance, on or about June 30th.
And remember, everything is instantaneous, global, and goes viral these days in minutes, so… no sexting!
