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  • 4 Sectors to 'Buy in May'
    Well, there are two things I agree with you on: that Treasury prices are going to fall, and that oil's action looks toppy. I figure on a pullback and consolidation phase near $120 there, and I've been reducing my position in STO on that assumption. Whether prices stay there or decline to $100 or just take a breather on the way to $200 and beyond depends on politics and monetary policy, neither of which can be predicted.

    But the fact that I don't want to overweight oil right now doesn't mean I want to go buy financials and retailers with my gains! The mere fact that energy and oil in particular looks expensive at the moment doesn't mean we all have to go put our money in some other equity sector. Maybe no equity sectors are attractive right now. Certainly there are some stocks I'd like to own (DSX, USB, BNI, SBS), but I base my picking more on the company than the sector, and anyway most are priced too high right now. Hopefully we'll see a big selloff so I can buy them on the cheap from traders facing margin calls. Meanwhile, instead of overpaying for them, I'll look to add to PST and TBT positions at cheap prices if yields decline (Treasury fundamentals are horrible; shorting rallies is probably the safest bet there is). Most base metals are well off their highs as are agriculturals after a steep drop and a long consolidation; those asset classes deserve a look.

    Otherwise I'm staying in cash (gold and silver, not dollars) until valuations return to earth or interest rates become positive. This is a market that will reward patience. Every time I read a letter pumping financials, homebuilders, or retailers I ask myself whether anything has changed since I became bearish on these stocks. The answer, in fact, is yes: they've all fallen. But they haven't, by and large, fallen nearly far enough, especially relative to earnings. Yes, a few banks will have big write-backs and anyone holding them will score big. But there's really no way to know which banks those are or when the write-backs will occur, and in the meantime you're sitting there taking dilution, eating write-downs, and watching your dividends get cut. When the huge 100% overnight payoff comes, you may find that it only brings you back to zero.

    You noted low volume and poor breadth. To me that says the bears aren't biting. The perma-bulls have to capitulate to put in a bottom, and they haven't yet. The Fed has given them huge piles of cash but they're the only buyers. Meanwhile the bears have the facts on their side: the Fed's lost its mind, the Treasury is looking at a $600b deficit this year on top of $9.4T in existing debt without even a glimmer of prudence in sight, earnings have been historically high in the past several quarters, valuations in P/E terms are either historically typical or high depending on your methodology, and above all else, tens of millions of Americans are deeply underwater - on their homes, on their (now very expensive to operate) cars, on their credit cards. The only reason to buy a stock right now is that you believe the company can make all its money in Brazil, China, and emerging markets. For a few, that will be true - ASTE might be interesting for that reason. But the macro picture is bleak indeed. We could see fundamental improvements in some sectors, but I don't believe we have yet. And I won't be a strategic bull until I see perma-bulls dumping bank stocks and buying gold. Had BSC been allowed to fail, we'd have had ourselves a real bottom; that very scenario would have been played out. Instead we limp along with negative interest rates and deep uncertainty, waiting for a miracle to occur or the next shoe to drop. You want to bet on the miracle, be my guest.
    May 26 12:26 pm |Rating: 0 0 |Link to Comment |View article

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