First of all. Damn it's early. I've only been asleep for about 5 hours, but had to get up for some breakfast meeting. I wrote this last night and forgot to post it. So when it refers to tomorrow, it means today, Friday.
I'm still in a good mood from the weekend. This Sunday we had one of our friendly investment brunches. We had a few new people too (well two were not entirely new). Even though it is Thursday, a little late in the week, I hope everybody had a good last weekend. One of the big topics Sunday was the jobs report tomorrow.
My thinking about my investment portfolio can sometimes be a little twisted. But I'll let you in to see just how bad it can be sometimes. I rarely write about my investment decisions in public spaces (mostly because of embarassment), but I've actually had a couple people from dKos ask me in email about some things, so I thought I'd let you into my thought process, no matter how embarassing it may be. Of course I'm wrong often, so never ever take my advice (I beg you to not do it -- as you might actually do better going the opposire way from me). Also, much of my time has been consumed lately so I haven't had much left for dealing with my own financial affairs. However, Sunday, this week's Fed announcement, and tomorrow's job report pushed me into action.
Most of the people at my group are fundamental investors. They look at P/E and PEG. Cash flow and revenue growth are their thing. I'm not really like that. Mostly, I trade sectors and indexes though ETFs and funds, gold and occassionally other metals, bonds, and futures and other derivatives. When I do invest in individual companies it is because I have personal contact with people in the company and trust them or I have first hand experience with a new product I think is amazing. I only own about ten individual stocks. I believe that policy moves the market. To get my feeling of which way the markets are going to go, I thumb though
The Hill, I see what is happening in places like the Senate Finance Committee amd what is being said in Congress, and I talk to people who know about what is going on than others (and of course the
Wall Street Journal, but everybody reads that).
Although there was no discussion Sunday about this week's Fed meeting, some were concerned about the April jobs report. I can't believe how fast last month went. I see the number tomorrow as very important, especially as it related to the Fed. Since the last run-up in Treasuries, I took a more agressive position and sold Treasury futures to increase my exposure to interest rates (futures you don't have to actually own to sell, since they represent a contract to do something in the future and not the actual underlying security itself), and tomorrow's number will direct the Fed what to do in six weeks. With a strong number (250,000-plus), bonds are dead in the water. They'll get a beat down in anticipation of a Fed hike sooner rather than later. With a low number, they might rally a little.
The Fed has really put themselves in a tight situation. Their synonym game has left many people wondering what they are thinking. I would have liked a 25 or 50 basis point increase this week and be done with it. Others would have liked that too. On the announcement to hold the funds rate steady, the bond pits broke out into a small chorus of boos. This isn't some austerity policy either. I think it would stamp out some latent inflationary pressure and put everybody to ease. However, the Fed is still talking about this output gap that nobody else seems to be too convinced by. At least the door is open for a rate increase this next meeting, and strong employment growth would make Greenspan and Co. look silly. Even with just moderate employment growth tomorrow and a strong number in June, Greenspan would have to admit defeat.
Either way, I think bonds have to fall. Either the Fed raises rates or inflation takes over. In either one, bonds fall. This is certain to me as the sun rising tomorrow. For the last jobs report, I put out an additional short on the 20-plus year iShares (TLT) at the end of March (well after it had already peaked). For this report I tightened up a cover order if it rallys to around 83.5. I expect another big report, but I want to make sure something bad doesn't happen. My worst case scenario is that an moderate but not great number comes out and I get stopped out of my position on a small bounce, but then TLT falls. That would suck, but I can't be around tomorrow to baby sit this thing.
One other position I'm in that could get hurt by a rise in the dollar is iShares Dow Jones Energy (IYE). If the dollar continues to rise though, I will close it out soon anyways. Things like my iShares DJ Healthcare (IYH) holding I don't really think will be impacted by tomorrow.
However, iShares Nasdaq Biotech (IBB) might be. And this is the biggest issue for this year, in my perspective. Like I constantly complain about here, Sen. Kerry's plan to roll back the capital tax reductions could have some serious effects on high tech companies. The tech-heavy Nasdaq in generaly could be hurt. Right now, the Nasdaq is tied to the polls. As Kerry moves up, the Nasdaq moves down. And it is explicitly becuase of Kerry's stance on capital. If tomorrow Kerry announced that he would seek to keep the capgains tax and dividend tax at today's lower levels, the market would jump that afternoon. And this my situation on this. Before the 2003 tax cut passed into law, when we already knew that cuts on capital were coming, I jumped into the market. If I think Bush is going to pull ahead, I'll do the same. I'll do more than that, I'll go straight into the futures market for the extra leverage. However, I've already fallen on this once. When it looked like Kerry was going nowhere against Bush, I opened up long positions on the iShares Goldman Sachs Tech (IGM). As soon as I heard about Kerry's new ad buy, I went and checked out his ads. When I saw his talking head ad (the one where he sits there and says there are the three things I'm going to do), I thought it might be a turning point in the polls. It looks like it was. Those positive, "I'm going to do this, this, and this" ads are incredibly effective, and I don't know why campaigns don't use them more (well, I do have a guess and it has something to do with ad people not wanting to do them because they are cheap, easy, and not flashy enough for them to show their skills). So, I'm currently still sitting on that mistake.
I have some other random stuff in my portfolio, but nothing I expect to change tomorrow.
So, now you can ridicule me when I lose my shirt and all my possessions for being an idiot.