... and then the US Fed dropped its $1.2 T quant bomb announcing it would put the (Mint's) printing presses into overdrive.
Implications:
1. Currency rate forecasting just got more volatile! Weekend's G-20 meeting means Fed action was a semi-coordinated easing of monetary policy globally, though clearly the US has first-mover advantage in a "beggar-thy-neighbour" USD depreciation. Its baiting other Central Banks to follow its lead -- some will, some wont.
2. Inflation. The Fed knows it and will watch for it, but managing it is orders of magnitude harder than timing the stock market. Expect the usual inflation hedges (Precious metals (GLD), TIPS) to follow a jagged rise up in this expectation.
3. The Real Economy is worse than we thought: The Fed's action is an oblique way of acknowledging that most of the outlined plans and actions have been doing very little.
My Medium Term Portfolio
Expect a short term bounce. The bear market bounce was already in place; these actions will give it a short term boost. Then for the medium term expect reality to set in and see the return of the bear market. Big(ger) market movements will be everyday events -- watch your financial assets closely if you want to preserve value.
25%: Long Gold and Silver
I am using DGP, AGQ. Both make sense given ongoing uncertainty in markets, medium term inflationary expectations. Silver is undervalued relative to gold on a historical basis.
Mining companies also make sense. I have a position in FCX -- introduces company management issues.
15% Inverse Treasury
TBT. In the short term the Fed will do all it can (and should) to keep interest rates low -- this is the housing market policy! However over time yields on US debt must rise, so the -2X instrument will pay off. Accumulate gradually in the next days to cherry pick low prices -- the payoff is months away.
20%: Inverse US Equities
I use ETF's to get this exposure. BGZ (broad market), FAZ (finacials). They have 3x leverage.
As the bounce fizzles, expect a rapid drop. There should be reasonable time to watch and get out of these positions before the next upswing.
0-20% Long Global equities
Expect China, India, Brazil and others to come out healthier (in relative terms) than the developed world from this recession. However "decoupling" is a false concept, all will do poorly for some time. For long term pieces of the portfolio (401K) I am accumulating global equities on dips. It's hard to hold something long in this tempting trader's market, but if anything (beyond GLD) this is what I would hold.
10-30% Commodities
Inflation will drive up this asset class significantly. I'm mostly in Oil (DXO) though starting to explore several other commodities. Stay tuned.
0-20% Short Individual Equities
The overall macroeconomic picture determines most of the choices above. And that is the most important trend right now. Yet, several smaller trends and bets are worth pursuing as competitive pressures in several industries play out. My short picks:
AMZN, GOOG, EBAY.
