Some always entertaining and informative thoughts on precious metals (which after weeks of suppression are finally soaring on a sliding USD - the Taper pricing in is over, time to price in the Untaper), Japan, Apple, nat gas and, of course, central planning from DoubleLine's Jeff Gundlach [11].
Since we're dealing with markets that are being manipulated by central bank policies, there is no such thing as economic analysis anymore. All you have is the imaginations of central bankers, and you don't know what they're going to do, so you have to be diversified. For the inflation part of the portfolio, silver is the right one because metals as inflation hedges are dead money. They don't pay anything. You want to allocate as little as possible, while still covering that base. Because silver is the highest beta, you want silver for your inflation protection because you can put less in it, less dead money. I believe if gold doubles, silver goes up 4x. You have twice as much dead money if you use gold instead of silver, so silver is a more efficient way to do it. We're in a deflationary world right now, not inflationary, though everyone is worried about inflation. The message the markets are saying, outside of the stock market, is deflation. Not surprisingly, silver is down but the Japanese stock market is the place to be.
Perhaps it started yesterday. I think that the complacency regarding stock market risk is very similar today to 1998, 1999 and and 2006 and 2007. This concept that it's the only game in town. This reason to own the stock market is TINA (there is no alternative). That's ridiculous. There's just as many alternatives as there's ever been. There's cash, there's bonds, there's real estate, there's hedge funds, there's commodities, there's foreign markets. What a strange world. I can't even think of a worse argument to own a market than TINA. It's transparently flawed on the surface of it. We'll see what happens. I think we're at 92% bullishness right now in the world of advisors on stocks. The most extended sentiment I've ever seen is 98% bearishness mid-March of 2009. I'd say the bullishness today looks remarkably similar to the bearishness of March 2009.
On AAPL and going from short to long:
We're actually in Apple. We actually own Apple in one of our equity portfolios. We bought at $405 the first time, and I think our average cost is below $425. I said that Apple would go below $425, but I wasn't committed to buying it. I think Apple is an interesting play. I think Apple is detached from the stock market for sure. The market went up a lot and Apple went down a lot. It's building a base. It's sorta cheap. If you strip out the cash, you've got a 7 P/E or lower on the business, it's a cash machine. I sorta like Apple. So, we own a little bit of Apple in our equity strategy.
I think if the stock market falls, which is almost guaranteed to fall sometime between now and year-end, it's almost guaranteed. Who knows how much it'll fall, who knows if it'll end higher or not, but it's almost to fall after this sort of a run. If you look at Japan as a harbinger, I think Apple will outperform. It could easily preserve capital. I see it as a defensive way of building out your stock portfolio against beta, which looks pretty dicey right now. We own a little bit of Apple right now. I like the stock better than the bonds. It's interesting how Apple has turned into a hated stock from the most beloved stock of the decade. It's just because so many people who own it are underwater.
On natgas:
I'm long natural gas. I've been long natural gas for a long time. I said Apple was a generational short, and people took that the wrong way. What I meant is, that over the course of a generation, Apple's stock is going lower. I didn't mean that Apple is the greatest opportunity in a generation.
Taking it the right way, natural gas is a generational long. It's something that I think is very likely to go higher in price. It doubled from when I bought it, but it's been volatile. I kinda think that most of the things that have done well in the past year are overvalued. What do you do? If you believe in something as a long-term play, the problem that you have is when you get out of it, what do you do next? If you sell natural gas at $4 (per BTU), what are you hoping for? It goes to $3.75? Are you going to buy it then? What if it goes to $4.50? Are you going to buy it then? I think it's going to double again. It doubled once, it's going to to double again. It might take five years, it might take ten years, but you can't get too cute. It's sort of like the Japanese stock market. It went to 13,000 which was my target, which sounded aggressive. That was my target for the year. When it got to 13,000, they said what are you going to do? I said 'You just have to stay long. The momentum is too strong. It's too major of a deal.' If you're going to own any stock market, it's Japan. If the reason to own stocks is quantitative easing, you want to own the ones that have the biggest support, which has been Japan. We're still long Japan. I'm not surprised it's dropped. I think it's going to drop further. We're long from 8,500. Obviously we don't expect it go up every day. I think natural gas is the same sort of thing. I wouldn't sell it.
Full interview can be found in TheStreet [12]