The end is nigh

I have a strong feeling that the end is nigh for equities. All equities. Let me be clear. I am not saying that equities will crash and never recover -- I am talking about a rather quick and messy slide that takes 15%-20%+ off of the major indices from current levels. It will probably also be a "V" shaped bottom, with a fairly quick bounce up from the lows. This is also not a prediction for the next week, but rather what I expect over the next 3 months.

My rationale is based mostly on current oil prices, which are having a severe impact on consumers and businesses in most countries at current levels. The liquidity cruch of 07/08 appears to have passed (the worse of it, anyways), but it has left economies weakened and vulnerable, and the big jump in oil prices is a kick in the head that will be impossible to dodge. The hawkish rhetoric coming out of some central banks does not help either. The UK and German yield curves are now inverted, pointing to recessions there within about 12 months. The US yield curve has also flattened as yields have risen -- definitively NOT what is needed to get the US economy and financial sector back in shape.

The slowing in global growth will inevitably impact commodities prices as everyone remembers about the laws of supply and demand. This will impact the TSE and many other indices that have been supported by commodity producers.

I would like to exit my remaining gold position at a decent price if possible -- unfortunately I missed the latest uptick but it is a relatively small position so I am not overly concerned. So far, the short energy position has worked well and I may add to that position in future. Other positions, such as short real estate and short EAFE equities, are also starting to do better. The one major loser in my portfolio is my short CDN equities position, though I feel comfortable with it given my comments above.

My fundamental analysis is supported by sentiment. As of last week the consensus was that the US had dodged a recession, but that is starting to change. This is now the best time to be short -- as the consensus slowly moves from one extreme to the other.

Bonds have been big losers over the past few months but I think the worst is past. Bonds yields also spiked up at about the same time last year, then dropped with equities in the summer/fall. I expect the same to happen again this year, as concerns about the economy return over the next month or so. However, I expect inflation to remain troublesome so it is very possible that the previous lows may hold.

MARKET POSITION: SHORT EQUITIES (10 units); SHORT REAL ESTATE (3 units); LONG GOLD (1 unit); SHORT ENERGY (1 unit)
Posted by CDN Trader