As tempting as it may be to chase the market, do yourself a favor and don't. Be glad that you have a decent position in oil because the supply and demand issue says prices could go higher.
Barron's recently interviewed Ray Dalio, the Chief Investment Officer of Bridgewater Associates which manages around $100 billion in assets. Ray was the Director of Commodities at Dominick and Dominick, and graduated with an M.B.A. degree in finance from Harvard Business School in 1973.
Here are the bullet points from Barron's interview with Ray:
1) The current dollar strength is ephemeral and it will fall relative to the Asian currencies over time as Korea, China, et. al. stop buying so many U.S. bonds.
2) The euro has peaked and economic stagnation on the snooty continent is the watch word.
3) Commodities will be the place to be as the developing nations are going to churn them up.
4) Oil is just resting and will be over $100 a barrel within a year pure supply and demand.
5) The U.S. equity markets are over the hill. Go East, young man
as far as you can.
I received yet another important contrarian indicator the other day concerning the real estate bubble. I know this guy who is notorious for chasing trends. In early 2000, he was ready to pop the cork on a new bottle of Dom Perignon to celebrate his entry to the $1 million dollar market just prior to the collapse in the market. Unfornately, his assets were cut in half.
Recently, he got another idea. Buying real estate with his IRA assets. I don't know when the real estate market is going to cave, but if track records are any indication, it cannot be too far off.
Here's an inflation alert for you. Another guy I know owns a large plumbing company. Because of the rise in energy and material costs, he raised his prices 33%. I couldn't help but ask, "if energy prices come back down are you going to lower your prices ?" Answer: "No Way".
Yesterday, the S&P 500 hit another new three-month closing high. The index has climbed 6.5% since hitting its low for the year in April. Unbelievably, the market has been advancing inspite of Crude Oil rising to $56.58 per barrel, its highest close since April 4. On top of this, the Philadelphia-area manufacturing number was weak, and copper prices jumped to a 16-year high. Metals and mining stocks were among yesterday's leaders.
All this does not bode well for inflation, and a meaningful correction seems to be right around the corner. Insider selling have been selling at a rate of 3-1 and 4-1 over buyers. Today, is option expiration, so expect a volitile day.
I am watching the homebuilders for a possible entry on the short side.
