Saturday, December 15, 2007

2008 won't be anywhere near average

I haven’t written with any investment thoughts lately as I haven’t had any. As I wrote earlier, the market was likely to rally pre mid-December and then trail off as tax loss selling and economic realities set in. Amazingly, that has occurred.

My positions are mostly behaving in a good fashion. I used the rally to sell some positions at good prices and start more puts/shorts at much higher levels than earlier in the month. The flight to quality by institutions has caused my blue chip holdings to perform well. The only problem of late is in very short term bonds and I still have a good profit at these levels and I’m sleeping well at night. So all is well.

Now how do I make a good return next year if the “market’ isn’t going to give me an average year. First, I’m going to expect less and be happy withcoupon-like returns. Second, I’m going to continue to “time the market.” I usually don’t do that as I generally just ride through any correction as the trend has been upward for years. This time I think we have more negatives at work and the upward trend resumption may take longer. I’m willing to pull money off the table as it will get reinvested in fixed income investments at rates that will be rising. The safety feature of government bonds will only hold appeal for so long and then inflation and a weak dollar will demand higher returns. That evolution could happen quickly as inflation has been rampant and the media has only recently noticed and the Fed has only recently acknowledged that “headline” inflation affects consumers. I could get a large portion of my 2008 return from rising rates.

My negative bets are self explanatory. As they go down I make money. And as long as everyone flocks to multi-national blue chips that have an overseas presence, that portion of my portfolio will do well.

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