greeninvestment.com

Its only human to change investment opinions on recent market actions.  Our emotions can change from day to day and from tick to tick.  However, basing your decisions on loving a market more as it moves higher or loving it less as it declines will eventually prove to be very hazardous to your investment health.

I tend to like a market less and less as it rises and appreciate it more as it declines, hard lessons learned.   We raised a great deal of cash for clients two weeks ago as sentiment indicators had moved to an extreme….extreme love and affection for stocks.   From out of the blue China raises interest rates and our President initiates a populist attack on our largest banks.  With most market participants fully invested, their next move could only be to sell which they’ve done with vigor.

Now, markets have come down and sentiment has cooled considerably.  This means its time to pull out my yellow pad and develop a list of potential additions to portfolios.  Gold is looking increasingly more attractive down here as well.

Having a significant amount of cash on the sidelines changes your state of mind enormously in a pullback.  Market sell-offs are not something to be entirely loathed as you don’t feel quite so humbled.   Sell-offs now become a window for opportunity as we cheer for fear and loathing to return to set us up for the inevitable rally.

Be careful out there,

Brad

Long Gold

Sifting through data this morning was the equivalent of a triple shot of espresso:  Too much love for stocks.

Rallies and gains have a foundation of fear and loathing, not love.  Too much love is a rally killer.  Its not easy to throw beloved CAGC and ZSTN back into the market but now our primary mode must be to protect capital and gains.

Adding a second leg to our Ultra Short Hedges.

Selling off our TBT  with a small gain.  Any selloff appears to be due to weak economic data and not rising rates, hence the TBT’s are weak this morning.

Be careful out there

Long but reducing CAGC, ZSTN, TBT

Up here at 8000 feet elevation at this time of year we use our wood stoves as a constant source of heat.  Sure, we have propane but the glow and atmosphere of wood makes mountain life much more enjoyable in the winter.   This year we’ve been burning some of the previously mentioned pine which was cut due to Pine Beetle infestation which as you may or may not know has been devastating to our region.

One trait unexpected in burning pine has been the spike in temperature since pine can burn so fast and the point of all of this is the equity markets by my measures are spiking in temperature as well.  Market temperature guaged by sentiment and the apparent lack of fear amongst traders.  The uniform consensus appear that the short term prospects of the markets are rosy and the long term…blech.  I’ll take the reverse of the consensus and brace for short term caution and let the markets cool off.

There can be no guarantee that markets will sell off soon but data and experience tells me a sell-off is in order, probably by the end of this quarter or early 2nd Q.

We’ve been selling of piecemeal our high flyers, of which no stock of ours has been hotter than CAGC which we primarily acquired in the low teens and is now at $38.  Pine won’t grow to the sky and neither will Chinese equities.   While the majority of our big winners from 2009 where Chinese, I suspect they could repeat their dominance in 2010 as no group has the combination of cheap valuation and growth rates.  Sure, they have issues such as accounting and possibly an inflated Chinese economy, but so far the trends are still very friendly.  I just think a “pause to refresh” is greatly in order.

The bottom line is we continue to build our cash levels and for the first time in ages we’ve added some “QID” (Nasdaq Ultra Short) to hedge our existing long positions.

BTW we are still long the “TBT” (Ultra short 10-year Treasury) as we remain bearish on bonds and interest rates.

Be careful out there

Brad

Long CAGC, QID