Silk Road Investor- Flash
Maybe this is the time. The reference is, of course, to the global selling in equities that commenced at the end of last week and continues today. And although SRI has noted repeatedly that this should be expected, the fact of the matter is that the markets are selling off.
The main fear in the markets is that rising interest rates will hurt demand. As noted in the latest issue of SRI, commodities hold the key as are the most extended. As I reiterated last week–quoting from the 8 March issue: “The main fear in the commodities market is that China might need to take a breather. The wild speculation–there are so many new funds that have been created for the sole purpose of investing in hard commodities that it’s easy to lose count–built into the metals will therefore cool off.
“A selloff in commodities is more likely than not. And given that no one knows at what level it will stop, although some people claim they do, investors should be prepared. Take profits off the table and reduce your exposure to mining stocks and the like. There will be better entry points ahead.”
And I continued: “Nevertheless, the view here remains that commodities will correct because indications are that China wants them to. Reports out of China point to a profit squeeze for domestic manufacturers, much of which is attributed to high commodity prices (although other issues are also at work). Add to this the obvious efforts by the Chinese to cool down their economy–two weeks ago the People’s Bank of China raised the one-year lending rate by 27 basis points to 5.85 percent–and it’s not difficult to see that if the Chinese successfully slow down their economy commodity prices will drop.
“Of course, things don’t work instantly in the markets; you can therefore only hope that the parabolic rise of commodities price won’t result in a dramatic bust that painfully distorts the commodity bull.”
In addition to this, the dollar (USD) is looking quite weak, and it would be extremely bad for the markets if it collapses. No economy in the world can cope right now with an outright collapse of the USD.
It’s also ironic that in the March 8 issue of SRI mentioned above, I also recommended shorting the big commodities companies as well as Brazil. We used BHP Billiton (NYSE: BHP) and the iShares MSCI Brazil ETF (NYSE: EWZ) as proxies for this trade. We were stopped out, only to see the securities coming back down with a vengeance.
Given that the odds for a sell off have increased since then, and that the aforementioned stocks are almost at the same levels as when we initially recommended the positions it looks like a good idea to re-enter. Short these again and put stops at 50 for BHP Billiton and 46 for iShares MSCI Brazil.
On the Portfolio front, SRI won’t make any changes–this is viewed as a balanced Portfolio with a fairly good mixture of high and low beta stocks. I know that a lot of readers have selectively bought recommended stocks, with the result being that they’re more exposed to certain risks–although they might have hedges of their own that will help out.
Dr. Reddy’s Laboratories (NYSE: RDY) is a stock you can take profits of the table. Although Dr. Reddy’s isn’t a high beta stock, the Indian market has run a lot. I’d expect it to be hit quite hard, given its performance. The stock itself has performed well since recommendation also.
From the rest of our Asian stocks, the banking stocks should be the most at risk. If you have only those, you might want to cut positions. Do not sell Bangkok Bank (OTC: BKKPF)–the liquidity there isn’t good and the execution might not be as favorable. In addition, Thailand remains a place that exposure is recommended. We’ll have more on this stock next issue.
From Europe, LM Ericsson Telephone Company (NSDQ: ERICY) and UPM-Kymmene (NYSE: UPM) should be the most at risk, both related to global demand.
Finally ABN AMRO (NYSE: ABN)–being a financial–will be hit. Although in a well-diversified portfolio, it’s a stock investors should own.
Bottom line: Stay diversified and make sure you’ve hedged your portfolios. Look for more on Wednesday.
The main fear in the markets is that rising interest rates will hurt demand. As noted in the latest issue of SRI, commodities hold the key as are the most extended. As I reiterated last week–quoting from the 8 March issue: “The main fear in the commodities market is that China might need to take a breather. The wild speculation–there are so many new funds that have been created for the sole purpose of investing in hard commodities that it’s easy to lose count–built into the metals will therefore cool off.
“A selloff in commodities is more likely than not. And given that no one knows at what level it will stop, although some people claim they do, investors should be prepared. Take profits off the table and reduce your exposure to mining stocks and the like. There will be better entry points ahead.”
And I continued: “Nevertheless, the view here remains that commodities will correct because indications are that China wants them to. Reports out of China point to a profit squeeze for domestic manufacturers, much of which is attributed to high commodity prices (although other issues are also at work). Add to this the obvious efforts by the Chinese to cool down their economy–two weeks ago the People’s Bank of China raised the one-year lending rate by 27 basis points to 5.85 percent–and it’s not difficult to see that if the Chinese successfully slow down their economy commodity prices will drop.
“Of course, things don’t work instantly in the markets; you can therefore only hope that the parabolic rise of commodities price won’t result in a dramatic bust that painfully distorts the commodity bull.”
In addition to this, the dollar (USD) is looking quite weak, and it would be extremely bad for the markets if it collapses. No economy in the world can cope right now with an outright collapse of the USD.
It’s also ironic that in the March 8 issue of SRI mentioned above, I also recommended shorting the big commodities companies as well as Brazil. We used BHP Billiton (NYSE: BHP) and the iShares MSCI Brazil ETF (NYSE: EWZ) as proxies for this trade. We were stopped out, only to see the securities coming back down with a vengeance.
Given that the odds for a sell off have increased since then, and that the aforementioned stocks are almost at the same levels as when we initially recommended the positions it looks like a good idea to re-enter. Short these again and put stops at 50 for BHP Billiton and 46 for iShares MSCI Brazil.
On the Portfolio front, SRI won’t make any changes–this is viewed as a balanced Portfolio with a fairly good mixture of high and low beta stocks. I know that a lot of readers have selectively bought recommended stocks, with the result being that they’re more exposed to certain risks–although they might have hedges of their own that will help out.
Dr. Reddy’s Laboratories (NYSE: RDY) is a stock you can take profits of the table. Although Dr. Reddy’s isn’t a high beta stock, the Indian market has run a lot. I’d expect it to be hit quite hard, given its performance. The stock itself has performed well since recommendation also.
From the rest of our Asian stocks, the banking stocks should be the most at risk. If you have only those, you might want to cut positions. Do not sell Bangkok Bank (OTC: BKKPF)–the liquidity there isn’t good and the execution might not be as favorable. In addition, Thailand remains a place that exposure is recommended. We’ll have more on this stock next issue.
From Europe, LM Ericsson Telephone Company (NSDQ: ERICY) and UPM-Kymmene (NYSE: UPM) should be the most at risk, both related to global demand.
Finally ABN AMRO (NYSE: ABN)–being a financial–will be hit. Although in a well-diversified portfolio, it’s a stock investors should own.
Bottom line: Stay diversified and make sure you’ve hedged your portfolios. Look for more on Wednesday.
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