Resolutions 2009: Survive

Posted: January 15th, 2009 | Author: Wayne Weddington | Filed under: Opinion | Tags: covered calls, covered puts, hedge funds, Strategy |  Email This Post Make a Comment »

By now, we have all made our New Year’s resolutions.  This, despite the fact that the correlation between that which we promise ourselves — “This year I will be more [giving], [healthy], [sober], [straight], [creative], [adventurous]…..” — and the downstream reality is usually low.  I suspect this year, for millions of ordinary people, the resolutions are going to be far simpler.  “This year I resolve to survive.”

Standing here in January, you must wonder which asset classes look good for the year.

Not many.  There is always cash of course but with treasuries paying 2.5% on the 30-year the prospect is not so enticing.  (It is better than a negative return, of course.)

Let us consider some very sobering facts.  First, that bailouts are even necessary is a stark signal that things are desperately bleak in the economy.  The Fed has largely shot its load with its aggressive reduction in interest rates in order to stem (delay?) the pain, on top of enormous “stimuli” to the economy in the trillions.  These are tactics that have not worked well historically in stimulating stable growth.  In fact, they intensified the problems.

Easy money has been the life blood of America’s economy since the eighties.  The growth was great and now the spigot is dry.  Like the carnivorous extra-terrestrial plant in The Little Shop of Horrors, the same stimulus to our growth is now sucking blood from our fingertips.  “Must be blood… must be fresh…”

So in terms of themes or asset classes this year, unfortunately there is not much to like.  But I do like strategies that benefit from volatility such as intra-day equity futures trading, inter-day covered calls and covered puts, each for as long as the VIX remains high (and it will).  I like distressed debt (yielding 10% or more), and I like healthy dominant companies with substantial dividend payouts.  Some investors are buying Asian currencies, knowing that they must continue to rise relative to the debtor-USDollar.  I have not… yet.  I do not like consumer cyclicals, industrials, mining and drilling, or financials…. (sounds like everything, doesn’t it?).  Be wary that short selling is going to be volatile.

2009 will be a year for alternate measures.

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