Stuck in the Middle

Sold my positions in financial and industrial companies this morning. This including Morgan Stanley (ticker MS), Goldman Sachs (GS), Citigroup (C), Prudential (PRU), Brookfield Asset Management (BAM), General Electric (GE), and Eaton Corp (ETN). Also sold my positions in Base Industrial Metals (BDD), Inverse Long Treasuries (TBT), Computer Associates (CA), Ferrellgas (FGP), and Huntsman (HUN).

This leaves me over 50% in cash and positions in precious metals (Gold, Palladium and Silver), and larger high quality companies like DOW Chemical (DOW) and General Electric (GE).

I find myself stuck in the middle on the future direction of the market, and thus uncomfortable being fully invested. The rising yields for European sovereign debt are highlighting, in my view, that credit markets are beginning to breakdown. This could result in a significant deflationary event, especially if Germany remains opposed to the European Central Bank intervention. On the other hand, if the ECB does actually step in and begin printing more money to offset the growing liquidity crisis, accompanied by actions by the Federal Reserve, we likely continue down the path I outlined in my previous post of a couple months of rising equity and commodity prices followed by a violent re-balancing of the market. Germany has a bad history with inflation that makes them anti-inflationary and they seem determined not to pick up the tab for everyone else. Fair enough, but it means the end game may be closer than I have been anticipating.

The bottom line is that the markets are increasingly moving towards a re-balancing of valuations to reflect the unsustainable debt levels in the world and my positions were increasingly relying on a "Hail Mary" from the central banks. As a wise boss once told me, "once you start hoping for something to happen you're screwed."