Author: Brendan Ruchert-Dixon
Covestor models: Alpha Trapper and Beta Blocker
Disclosure: Short FSLR
As the market became shaky in April and continued to drop through May, I began to see more contrarian opportunities. While it’s likely the market will remain this volatile, the heightened level of the CBOE Volatility Index (VIX) and VIX futures led me to once again open a short position in the Barclays Bank iPath S&P 500 VIX Short-term Futures ETN (VXX).
As of the June 1 market close, this bet had not yet paid off as fear has only increased since then. These sell-offs come in waves, and though I expect more selling pressure as shocks from Europe and elsewhere continue to roll in. I also expect more optimistic intervals where the either news isn’t as terrible as expected, or policy makers intervene in attempts to head off the crises.
My First Solar (FSLR) investment has continued to be a big loser through the month of May, losing another big chunk of it’s value even though there has been no critical negative development for the company since the earnings report. As of June 1, it is now trading at less than 1/3 of book value, a situation typically reserved when bankruptcy is a probable outcome. I do not see that as likely in the medium term given the company’s fairly strong project pipeline and balance sheet, so I am remaining in the stock.
In addition to my existing short CurrencyShares Euro Trust (FXE) position. I also sold CurrencyShares Japanese Yen Trust (FXY) short this month as well, as I see the dollar as “least-bad” currency when compared to the euro and the yen. While the yen is typically viewed as a safe haven, that could change for several reasons. First, Japan is in a worse fiscal position than the US and many European nations.
They have the highest national debt to GDP ratio of anyone, they continue to run a significant fiscal deficit, and now their trade balance is under pressure due to their need for more energy imports after a flight from nuclear power. Add to that and an aging population that will soon be redeeming more bonds than it buys, as well as Japanese policy makers threatening action to keep the yen from strengthening further (this can happen – the Swiss have already done it), and you get a recipe for a weaker (or at least “not stronger”) yen.
