We have been “cashy and trashy” now for the past month, urging readers to hold most of their trading/risk capital as freying green paper in their checking accounts while simultaneously looking for bargain basement equities like OSK, PBR, WMT, BRK-A, JNJ, KO, etc… so that investors don’t get too bored sitting on the sidelines. We suggested a 25% allocation to deep value stocks, 50% cash allocation, and 10-30% in hard assets, with the remainder in foreign currencies.
While we are not doomsday types here at Hedgephone, we are also not “believers” in the cult of equity technology stocks either. In our view, now is the time to go hunting for some short exposure. While we think it’s now okay to short some CRM, QQQ, IWM, and Amazon.com we would keep stop losses very tight and would maintain some long exposure to the highest quality or lowest price to book value names (which have been crushes lately) as a “long hedge.”
The reason for our bearish bend here is that we are now at the top end of the range in equities while none of the sovereign debt issues has been resolved in any material fashion. Issuing more debt and then levering that debt up 10X is certainly not a long term cure for debt. European contagion fears will be out of the markets anytime soon and the Euro has to be viewed with a serious dose of skepticism (as with most paper money currencies). The long term fundamentals are still in place for hard assets like gold, silver, and fancy color diamonds (hint hint www.usdiamonds.net) to outperform both equities and cash. Real estate is the outlier here, whereas the real estate market has been so beat up and crushed that we think it may actually catch a bid at some point in the near future.
For the financial planner/allocator in you we like the following mix:
25% in long short equity and macro hedge funds
25% in Blue Chip US Equities
25% in Foreign and US Currencies
25% Short Overvalued US Momentum Equities