(1) Rising commodity prices into the first half of 2012, driving up prices for gas and food,
(2) Higher equity valuations into the first half of 2012 as liquidity inflates the stock markets,
(3) Rising interest rates on longer-term bonds due to inflation concerns and rising stock valuations,
(4) Declining wages as companies control headcounts to offset higher material prices, and
(5) Rising CPI by mid-2012 as companies pass along higher costs to customers,
All this leads to a potentially violent reset of the markets in the middle of 2012, in my view, in-line with my expectations under my Sagflation thesis of slow-to-negative growth combined with more volatile prices. During this phase of Sagflation there may be rising fear that we are entering a period of Stagflation, or high inflation, high unemployment and slow economic growth. I suspect this potential period of Stagflation may precede a period of negative growth and deflation in 2013 and 2014. While worrisome, I also believe the years 2013 and 2014 enable the political and economic re-structuring required to set-up for healthy growth in 2015 and beyond.
Returning to 2012, the potentially violent reset during the middle of the year may occur due to:
(1) Consumer spending falling due to a squeeze between rising food/gas prices and declining incomes,
(2) Debt stifling growth in European countries and with US consumers,
(3) Social unrest stemming from economic hardship in Europe and the US (Occupy movement),
(4) Additional austerity measures legislated in the US and enacted in Europe to reduce debt, and
(5) Diminishing impact, or even reversal, of expansionary monetary policies that appear to hurt growth.
These are my opinions and I lay them out in order to refer back to them in the future in order to track how my perception of the future evolves as unexpected events occur.
With all this in mind, I may exit a few positions that do not benefit from the anticipated rise in commodity prices and steepening of the yield curve. My portfolio currently includes the following:
Weight | Name | Ticker |
---|---|---|
~16% | Proshares Ultrashort 20+ Yr Treasury | TBT |
~11% | SPDR Gold Trust | GLD |
~4% | Base Metals Double Long | BDD |
~4% | Rowan | RDC |
~4% | Boardwalk Pipeline | BWP |
~4% | Eaton Corp. | ETN |
~4% | DOW Chemical | DOW |
~4% | Huntsman | HUN |
~4% | Prudential Financial | PRU |
~4% | Brookfield Asset Mgmt | BAM |
~4% | General Electric | GE |
~4% | Vale SA | VALE |
~3% | iShares Silver Trust | SLV |
~3% | Tyson | TSN |
~3% | Goldman Sachs | GS |
~3% | Ferrell Gas Partners | FGP |
~2% | ETFS Physical Palladium Shares | PALL |
~2% | Citigroup Inc. | C |
~2% | Morgan Stanley | MS |
~2% | Pepsico | PEP |
~1% | Teva Pharmaceutical Industries | TEVA |
~1% | Computer Associates | CA |
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