Thursday, January 8, 2009

Dynamic asset allocation shifts: from long bonds to commodities

I am done for now selling any TC containing an investment grade bond. But what do I do with the rest? I am inclined to hold the junk rated ones that I own for now, which include XKK, DKR, PKK and PIS. I have ended up, however, with more senior Liberty Media bonds via the TC form of ownership than I really want to have, over a 5 grand commitment which is too much for this security by a couple of grand at least as I have soured on John Malone's management of this company. But the main problem now is what to do with some of the other bonds that I have mentioned like the ones from Phoenix Insurance, Ford Motor Credit and Forest City. In retrospect, it would be easy to make a decision on PNX if I had just held onto the 100 bought at 6.06 until now. I could then sell 100 and just keep a 100, having doubled my original investment in a few days. I am more inclined to stay with a security with its credit profile longer under those circumstances with a looser stop loss. But what to do now that I have sold 100 way too soon and kept the other 100? Do I sell what I have left or hold just for the interest which is very good? I have decided there is no clear answer on that one. If I am not sure what to do, then I generally do nothing. The Forest City (FCY) position is up around 20% and it was a very close call on whether or not to even do a nibble. So that one will likely be sold at some point this year based on more upward movement in the price. So I am starting to look at it several times a day now for a possible jettison. The FCZ was just crazy from the start so I am tempted to just continue being off my rocker on that one having sold the first 100 of a 200 share lot a few days ago.

The minor amount of proceeds from the recent bond sales are likely to be shifted to commodities where my percentage allocation is hovering just above zero, having added very very small positions in UCO and UNG, with the most likely next candidate now being a metal. So this would be a small shift of some money from an over-weight position in long corporate bonds by increasing my allocation in a severely under weight position which is commodities. While a prediction on commodity prices is worth less than zero, in my opinion, I did note Eric Bolling's predictions summarized in today's Yahoo Finance Tech Ticker. Tech Ticker, Yahoo! Finance I would agree that the world's governments are currently engaged in a massive, unprecedented reflation effort. Over time, this should stabilize commodity prices and cause an upward move. Timing the move is practically impossible however. For this kind of potential move, I am more likely to be early. Recognizing that issue, I will be early with small amounts of money gradually placed in this sector, spreading it around, and just taking my time. I would not at all be surprised by a continuation of a bear market in commodities for another year. I would be surprised if it continued into 2010 but that would not be the first time nor the last about being surprised by something. You would think those VaR models would have a lot of leeway about the uncertainty of virtually any prediction about the future. But, on the other hand, look at the chart of OIL, UNG, GSG and other ETFs in this sector and there has already been a tremendous correction as we all know already.

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