Update
Today I used the selloff to cover my shorts on Grand Canyon Education, Clearwire and Panasonic. I may be way too early in reducing short exposure to the for-profit education meltdown, but I think going for the last nickel may not be the right idea here. Besides I can always reshort LOPE after other short sellers cover. Clearwire’s subscriber growth has been impressive, and moreover it may switch from Wimax to LTE. This gives dumb money a reason to buy the stock when the general market recovers. Again, I can always reshort CLWR after other short sellers cover. Panasonic has been down recently because of rapid appreciation of the yen, which I believe to be fundamentally ridiculous. The market seems to ignore Japan’s alarming debt level and weak demographics. When the yen reverses course, dumb money will have a reason to buy the stock. I believe that Panasonic management will regret buying out two of its main subsidiaries–effectively doubling down in a tough situation–but last quarter, sales increased beyond my expectations. I can’t understand how the weakest electronics OEM could have accomplished this. Maybe they’re fudging some numbers?
There are extremely unusual dislocations in the market currently (besides the enigma of a rising yen). I am worried about severe declines in China’s real estate prices, which may lead to a decline in commodity prices and devaluation of the yuan. Also there seems to be another bubble in US government debt and artificially low interest rates. When these excesses reverse, there will be a chain reaction across all financial markets.
Given the high degree of macro uncertainty, there is a 100% probability that enormous sums of money are positioned incorrectly. Andrew Hall may be too bullish on commodities, gold is overowned given its lack of utility and John Paulson’s funds are more than fully invested. Paulson seems to be betting that private equity firms will resume pre-2008 deals since he’s buying levered equities such as casino operators.
But what do I know? I’m just some twenty three year old kid. My view, as reflected by my portfolio, is that some stocks are dramatically undervalued and others are overvalued (and frauds to boot). I think some market participants are too fixated on the collapse in stocks during late 2008 to early 2009 and others are playing the momentum trading Greater Fool game while excess liquidity is in the system. I feel like I am in a crowd of bipolar people. On different days it’s as fun as it is annoying. One thing is for sure. I will not change a strategy that works. I’m going to increase net long exposure as prices fall and decrease exposure as prices rise. I will buy bonds and stocks of companies that can withstand a wide range of interest rate and currency swings. My return to investors is beating the S&P 500 by 10% this year after fees, and I’m pretty happy.
