Wednesday, May 8, 2013

Good piece by Bill Gross of PIMCO.  I agree with most of his conclusions, except for maybe the shortening duration part.

http://www.pimco.com/EN/Insights/Pages/There-Will-Be-Haircuts.aspx

I think the longer durations (as long as they are in government bonds) will be ok.  Should not be a big position either way.

Right now, my exposure to equity is about 24%.   I have participated a little in this month's rally, but just in keeping with the exposure.

My materials allocations have been working nicely (CLF, FCX and VALE) and AAPL showing signs of life.

RAX also has popped up along with some rumors about a buyout and maybe good earnings tonight.  We shall see.  Very speculative right now and I have cut my exposure accordingly.

On a separate note, I have noticed quite a few stories regarding banks not lending.  I will repeat that my believe is that right now, it is not about lending standards.  indeed, even people with good credit are being turned down.  It is about the absolute level of interest rates.  Banks will only lend if they can sell the mortgage immediately and earn a spread.

If I see one flaw in Bernanke's plan, it's this.  He is helping asset prices, but it is not flowing into the economy, save for the wealth effect and that is not a stable source.

Stocks are still cheap relative to the options out there and also relative to their earning power.  I do have to believe, however that there will be pullbacks.  The problem is will investors have the gumption to get in on smaller than hoped for drops in stock prices?

It is difficult to find stocks that have not participated in this run up but still have liquidity.  Aside from the sectors I have pointed to previously, FEZ (Euro Stoxx 50) which represents large cap Europe could be a candidate, but we have to be a bit careful with currency exchange risk.  IWM, small stocks have not participated quite as much as the large cap names, but historically have done well.





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