Below are some of the key points he was basing his investments on back in November:
- Hard assets like gold, metals and to some degree oil …will increase in value as people flee paper money
- The US stock market will go up because QE will result in asset inflation as people flee dollar denominated investments for stocks.
- Because QE will reduce rates and drive up the price of bonds banks will suffer.
- The value of the CDN $ will continue to rise against the US $.
Now for Nicholas’s current market analysis for the next three months (that I received on April 13th). So when he mentions that he’s moving to cash that would have been by the end of the day on Wednesday.
Such an increase in long rates would have a big impact on the market. Stocks, bonds and particularly commodities would be hit hard. That this is a serious matter you can judge by the decision of Bill Gross the head of Pimco (the largest US bond fund) to sell all his billion $ UST holdings a few weeks ago.In fact he is now short $12.00 billion in UST.
Therefore I am going to the sidelines and will sell all the stocks that I still own by the end of today. I wish I had done it last week like I said I was.. but I didnt. At least I sold all my names, converted the proceeds to a few liquid ETFs and put stops on everything so the damage has been relatively minor.
I dont think rates will stay high forever but will gradually come down as the US and world economy slow so I am not selling my preferred shares. In fact if there are a couple of good panic days I may by more bank and utility preferreds. but not insurance company prefs..
I also think the Canadian stock market is going to be hit hard. Our market is very expensive compared to others…P/E of 20+ vs a 15 PE on the S&P500 and if commodities get hit watch out below. Goldman has closed the commodity trade they put on in December and right now I am starting to build a position in HXDs which will become larger if and when the TSX crosses its 50 day moving average.
As for everyone swapping Cdn currency for US just becuase were above parity, I think it’s a trap! Currencies always tend to overshoot. David Rosenbergs morning letter is calling for $1.10 CDN/US in the not so distant future. At that level It might become compelling to scale into a US dollar position.