Friday, August 29th, 2008...1:30 pm
Sugar, We’re Going Down Swinging
Friends, it’s time to get hedged, cut your losers, and start swinging for the fences with shorts as our economy goes down. Our monetary programme is founded on the American consumer and those consumers, in addition to recoiling from the sting of inflation, are collectively making less money (by about one half of one percent per month for the last 3 months). This means that they have less money to spend on legitimate goods and if you follow the dominoes, that means that the American corporations that sell those goods will not be selling as much product and will not be making as much money as they were.
Companies that rely on our discretionary spending are represented in XLY. Notice how the price broke 5-year support earlier this year and is confirming that break today:
The U.S. Bureau of Economic Analysis (BEA) has issued the following news release today:
Personal income decreased $89.9 billion, or 0.7 percent, in July, in contrast to an increase of $7.4 billion, or 0.1 percent, in June and an increase of $218.0 billion, or 1.8 percent, in May.
The full text of the release on BEA’s Web site can be found at
http://www.bea.gov/newsreleases/national/pi/pinewsrelease.htm
To watch the Fall Out Boys sing Sugar we’re going down swinging, click here.
Disclaimer: I like sugar. Cane sugar, beet sugar, brown sugar, high fructose corn sugar, YUMMY! XLY is an ETF with companies that rely on the above consumptives. If you short XLY and it tanks, I won’t make money. If you buy billions of shares of it as fewer people sell, and the price goes up, I won’t make a penny. In sum, I have no interest in XLY, except in consuming the sugary products of some of its concerns.
seekingalpha link: http://seekingalpha.com/article/93365-consumer-discretionary-sector-is-going-down
August 31st, 2008 at 3:13 pm
I asked the same question on your article on Seeking Alpha. Do you have pointers to the following quesitons?
I've been trying to time AMEX:SKF in my short portfolio for almost exactly a year now. Through a combination of my own imperfect human discretionary timing and fighting the Fed, who seems to rear his ugly head every now and then unannounced, I've been able to get the same results as if I had just put the money in from last Aug. 07' to this Aug.08' .
In essence, I'm looking for an optimal short fund to rotate in/out on a quarterly, bi-yearly, and yearly basis or based on some other metric as described below.
The following well research study by the Anderson business school in UCLA correlates the business cycle and how housing has influenced this cycle since the Depression.
http://www.anderson.ucla.edu/faculty/edward.lea...
If we fast forward to the conclusion, Pg.51, this is the meat of the doc.
“The temporal ordering of the spending weakness is: residential investment,
consumer durables, consumer nondurables and consumer services before the
recession, and then, once the recession officially commences, business spending
on the short-lived assets, equipment and software, and, last, business spending on
the long-lived assets, offices and factories. The ordering in the recovery is
exactly the same.”
1) Could you match the current “temporal ordering” we are currently blessed with with?
2) Are these “Temporal Orderings” in the right order?
3) From the answer to #1 above, could you assist me with matching the best short fund one could use to optimize their gains by pairing our current a “temporal ordering” with this fund?
My call is that we are in the Consumer Services “Temporal Order” phase and the AMEX:SCC Profunds is the most appropriate short fund to map right now at this time.
Any advice would be appreciated.
Thank you in advance,
FYI - Here is an update from the recent Jackson Hole trip from the above research.
http://www.kc.frb.org/publicat/sympos/2007/PDF/...
-Josh
August 31st, 2008 at 3:14 pm
I forgot to add this one question.
4) What is the best way to inverse XLY?
September 1st, 2008 at 11:57 pm
Josh, thanks for sharing your questions and comments - both here and at seekingalpha. It sounds like you are taking on the markets, and that is fantastic. For me, exposing money to risks in the markets is a lot of work and is “made to order” by me for my personal risk pallette. It has taken me well over ten years to figure out which indicators to use, which instruments to deploy, how much money to risk, and how much of my life to devote to it. As a former investments education mentor, I remember that it took my new students approximately 2 years (1-3 discussions per week) to resolve their investment posture. Most of them didn't make it past the 6 month mark and quit. I don't have the luxury of formally working with you on your considerations (but I wish I did - you'd be a quick study, that's obvious). Bottom line: there are several ways to take a bearish stance on XLY. It can be shorted, you could create a basket of shorts from the top 10 or some other proxy (http://www.ssgafunds.com/etf/fund/etf_detail_XL...), you could go long the puts (even though the price spreads are ugly), you could create a bear call spread, etc. etc. etc. It is not my intention to discourage you. This is my way of dancing around the liability that a recommendation of any sort would present. Like the rest of us, I'm afraid you're on your own. That being said, you don't have to be alone. There are three communities that I suggest. All three are blogrolled in the column on the right. Check them out and tell me which you like best. Again, thanks for chiming in and please continue to do so. Wishing you consistent success, Brian.
September 2nd, 2008 at 9:53 am
I got lots of target practice over the weekend. and I swung a lot of axe handle. the sooner I have a back yard full of fire wood the better.
I have been making job contacts for friends and family and self… Nothing has been produced, but I got lots of free fire wood in the process…
As soon as I get Obama to pay off my mortgage I will be ready to go live the good life…
JUST FOCUS ON WHAT YOU SEE AND NOT WHAT YOU THINK…