Three Macro Investment Plays – CYB,TBT,YCS
Stock-Markets / Investing 2010 Oct 31, 2010 - 03:39 PM GMTBy: Peter_Navarro
The market remains in an uptrend but it is a “weak dollar” rally, not a “strong economy” rally. In real, dollar-adjusted terms, the market is closer to flat. A possible crash triggered by the weakening economy or a currency war is not out of the question. Don’t fight the trend – but I’m certainly not jumping in on the long side with both feet either.
China’s recent interest rate hike and Fed Chief Ben Bernanke’s recent QE2 interest rate cut put us on a collision course. You simply can't have one country lowering interest rates in another country raising interest rates when the two currencies are held together by a fixed peg. Something has to give, and I think perhaps that Ben Bernanke is trying to force the Chinese to revalue the yuan because the Fed chairman knows that the White House and Congress don't have the backbone to do it – and the Fed chairman also knows that reducing the global imbalances between China and the US is critical to long-term recovery.
From an investor's point of view, I see three related macroplays: Long the yuan via CYB, short the long bond via TBT, and short the Japanese yen, YCS. (I have all three positions)
The yuan MUST eventually rise and can’t go down so CYB is very low risk. Once the yuan starts to rise, long bond yields must rise because the Chinese. Buying as many treasuries as they do now. This will cause a spike in TBT. The yen is grossly over-valued because the yuan is grossly undervalued – it must fall once the yuan starts to rise.
I continue to allocate 20% or more of my portfolio to small cap, discovery stage biotechs outside the cycle. I said to get into SVNT prior to an FDA ruling that would lead to a 75% pop. I said to sell SV is NT after the pop because it might be hard to get a buyer for the company. Now that SVNT has fallen dramatically because of a failure to find a buyer, I think it is a buy again and has at least a 25% upside. (I bought on drop).
Right now, my favorite little penny play and best performer is Stellar Biotech (SBOTF) – it has almost doubled since I first noted it in the newsletter. (Check my previous newsletters for more detail.) I've also begun to build a position in Direct TV as a long term secular play as satellites spring up all over.
My other highly risky penny play that is making a very nice move on low volume is LPTN. If it breaches a buck, it should start to run nicely.
Since I got into the rare earth bonanza a bit late, my small positions in several stocks are flat to down; but I'm not really worried because this is a long-term building project. So far, I have opened small positions in ARAFF, GDLNF,GWMGF, and LYSCF. Only GWMGF is up. (As previously noted, I purposely stayed away from Molycorp as it is way too expensive.)
I sold Hovanian for a small loss and reloaded with Beazer, which has better technicals – so that's my play on the housing sector, which I think is at a bottom.
I dumped him my shares in DUSA, MDVN, and TEVA not because I have lost faith in it but simply because I wanted to deploy my cash elsewhere and I didn't see much upside in the near-term.
I also closed my position in QTWW on news that it was going to undergo a reverse stock split. I just hate that crap, and reverse stock splits invariably reduce a stock’s price.
I closed my short position in GameStop with a very nice little profit -- with the market trend robustly up, just don't want to be short now.
I also opened a position in a penny stock called Converted Organics (COIN). It's got excellent technicals and came up on my Market Edge screen. It's a good long-term play on agriculture.
Stocks that I am long: ARAFF,BZH,COIN,CYB,DTV,DUSA,FEED,GTXO,GWMGF,GDLNF,LPTN,LYSCF,NRGX,SVMI,SNT,
SBOTF,SVNT,TBT,YCS
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Professor Navarro’s articles have appeared in a wide range of publications, from Business Week, the Los Angeles Times, New York Times and Wall Street Journal to the Harvard Business Review, the MIT Sloan Management Review, and the Journal of Business. His free weekly newsletter is published at www.PeterNavarro.com.
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