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| Symbol | Sector | Return | Exposure | Trades | Last Trade | Status | ||
|---|---|---|---|---|---|---|---|---|
| AMZN | Specialty Retailers | -52.54% |
|
14 | 24-Jul-09 | Currently Holding |
06-Jan-10
What I Learned In 2009 & Outlook For 2010
Holding Rationale for AMZN.
The stock market was a wild ride in 2009. We started the year with the continued “crisis” from 2008 and reached the ultimate lows in March. Since then, however, it has been a skyrocketing missile upward. The Nasdaq is up 80% from the lows and other major indices over 60%. As we cross into 2010, it looks as if the trend will continue.
For me personally, I have 2 accounts with 2 different strategies and as a result, 2 very different outcomes this year. My long term account is a long only account and therefore did very well this year. My trading account, on the other hand, took a hit due to some incorrect bets on the short side; namely in commercial REITS such as Simon Property Group (SPG) and Vornado Realty (VNO).
The two biggest factors in 2009 were government intervention, namely zero interest rates, and the technical momentum of coming off a major low. Both contributed to the fierce rally this year. The biggest lesson I learned this year was that the stock market is not economic reality but instead is a perception of economic reality. In my opinion, the economy has gotten weaker this year despite what you hear on TV, but that doesn’t necessarily matter, because others’ perceptions were different and were able to drive the market higher.
The question then becomes whether or not the economic reality as I see it will catch up with the market or will the market correct? Will this happen in 2010 or can the government push this day of reckoning further into the future? I’m no longer underestimating their ability to do this although there are some significant hurdles that Ben Bernanke and others will have to overcome.
A huge hurdle in 2010 will be the massive increase in debt that the U.S. will issue. With quantitative easing supposedly ending in the spring, there will have to be an eleven-fold increase in buyers of U.S. debt. Since that is an insanely large increase, there will most likely have to be a major raise in interest rates or another round of quantitative easing. Both have major effects. The former choking off economic recovery (especially in housing) and the latter causing gold to potentially spike on more dollar weakness. Pick your poison. I’m looking to position myself for both outcomes.
For the long only crowd, I wouldn’t be surprised to see a shift out of the sectors that had a huge run, like technology, and into more defensive, blue chip names with dividend yields. For example, sell Amazon (AMZN) and buy Philip Morris Int’l (PM). As investors may doubt the ability of the markets to continue reaching new highs, but not wanting to get out of the game completely, this might be a possible scenario. I also like Verizon Communications (VZ).
Another potential obstacle for the market in 2010 is the continued issuance of equity by large banks. Bank of America (BAC), Wells Fargo (WFC) and Citigroup (C) recently combined to issue $70 billion in new equity. That essentially takes $70 billion out of the current stock market. That is a large number. If losses continue, and they need to raise additional capital, new issuances will continue to be market headwinds. With that said, I’m happy that the banks are able to raise private capital versus tapping the tax payer, but the dilution is real.
With the market making new highs, it is absolutely critical to limit the downside on deploying new money at current levels. With the added risk of a mean correction, you need to identify stop loss targets on new money. For a clear example of this, check out the recent trend I’ve identified in Exxon Mobile (XOM) and as a result, I have started a new position.
Moving forward, I’m working on positioning myself in a more market neutral manner. Long quality names with good yields, maybe even looking to increase the possible cash flow through the use of a covered call strategy. If certain names that I got burned on shorting in 2009 change directions, I might be quick to jump back on the short side.
I’m continuing to look to add to positions with regards to the major trends that I’m following, specifically in high yield oil & gas plays and also gold & gold miners. These are multi-year strategies; therefore, patience is important in order to wait for quality buying opportunities.
Posted at 03:10 in Holding Rationales | Permalink | Top
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