Random Thoughts, Thanksgiving Eve 2009

Tomorrow is Thanksgiving here in the US, markets will be closed and reopen for Friday. Trading is likely to be light the rest of this week. So what follows are random thoughts, in no particular order. Some contradict each other -- but that's the way it goes when we're in the fog of war.

• This bear market has likely NOT seen its lows. Stocks have yet to see normal bear markers of single-digit P/E ratios and fat yields. Why? Because of the unprecedented money-pumping done by the US Fed as well as central banks around the globe. This can't go on forever.

• That said, the more the "conventional wisdom" says we're in store for a weak recovery, the more I start thinking the surprise may be on the upside. This is one reason why I still am invested in stocks, for the most part. My stock market exposure has a time horizon of more than a decade. Keep that in mind.

• There is very little among stocks that strike me as bargains here.

• The portfolio was 20% in cash at the end of Q3, and closer to 25% with my partial sale of DirecTV. That cash is in a US Treasury money market fund, paying nothing, which is not something I like. Yet this cash level is the byproduct of finding little in the way of equities.

• My gold investment, SPDR Gold Trust ETF (GLD), has had a nice run. I haven't sold any of it. Central banks sold gold earlier this decade, helping drive the gold bullion price down. Now central banks are either buying or at least not selling, which could drive the price even higher. India's big buy from the IMF got the headlines. Yet others, like Russia, have been buying and are looking to add. Though not in the gargantuan chunks of India's recent purchase to be sure.

• Some gold mining stocks may actually be better buys than the bullion. But I'd never buy just one or two mining stocks. And with GLD more than 10% of my portfolio, I start getting into issues with over-concentration and lack of diversification if I start adding gold miners.

• Gold certainly could see a correction. If it does, and my "gold as insurance" views hold up, I could see letting gold have 15% of the portfolio. That's certainly not a prediction or something I want. This is a weird time and there are a lot of moving parts in this story.

Lastly, India bought gold not because they see gold going up so much as they see the US dollar going down. Have a great Thanksgiving if you're in the US, and all the best to readers the world over.

Comments

[armin sternverg]

i enjoy reading your thoughts over the years. everyone has their own parameters for risk. but i am more than fully invested in the moment. rather than holding cash you could be owning owning a couple of closed end canadian funds cmp.un and crp.to each of whom have discounts exceeding 30%. The former is made up of gold stocks and is run by mgmt of dundee and the the latter is made up of ag stocks. good luck.

[John]

@armin: You've been reading me for years -- and haven't been bored to tears? Or swore off this blog after disasters like my Japanese consumer lenders? I'm humbled and gratified, seriously. Thanks for the suggestions and I'm well aware I may be making a mistake holding a good amount of cash.