When I was a kid growing up in
Figure 1: The Salt ‘n’ Pepper Shaker Towered over
As an investor looking into 2010, this scary ride is brought to mind unaided. No doubt we will survive this coming year just as we survived the questionably maintained fairground rides of the 1970’s. However, I make no promises about our condition upon exit. Given the economic turbulence that appears likely to come our way in 2010, losing our lunch strikes me as a definite possibility. The trick, as always, will be to avoid losing our shirts.
Avoiding Real Estate, Seeking Liquidity
For next year, a critical strategy will be to insulate oneself as much as possible from a long-overdue housing bust north of the 49th parallel. Forget the bloggers, warnings about a Canadian housing bubble are now coming from bank presidents. Adding urgency, the federal Minister of Finance now seems intent on kicking out the legs from under the housing market by reducing the mortgage credit availability that drove prices into the stratosphere in the first place.
A second key theme for the 2010 portfolio is liquidity. In the long run asset prices rise, driven largely by growth in money supply. But in order to prosper in the long run, one must first survive a succession of short runs. There are too many people in Canada between 30 and 50 years old who have some home equity, a lot of mortgage debt and precious few other assets. In order to make it through to the “other side” of a housing bust these folks need to line up liquid assets or sources of guaranteed borrowing that could see them through a rocky patch. Insolvency (owing more than you are worth) is unpleasant, but it is not financially fatal unless combined with illiquidity (having no cash).
Shoeshine’s 2010 Portfolio
As for what to own, I offer the Shoeshine Portfolio, a hedge fund in a box. I have covered many of these securities in recent posts and present a summary rationale here.
Figure 2: The Shoeshine Portfolio for 2010
|
Category |
Symbols |
Name |
Weight |
|
Cash and Equivalents |
C$, US$, HK$ |
N/A |
30% |
|
Precious Metals |
NYSE: SLV NYSE: PTM NYSE: GLD TSX: CEF.A |
i-shares Silver Trust E-TRACS Platinum SPDR Gold Central Fund |
60% |
|
Inflation-Protected |
NYSE: IPE |
SPDR Barclays TIPS |
10% |
|
Equities (Long) |
TSX:COA TSX: SVM NYSE: CSH NASDAQ: CSCX NASDAQ: GPC HK: 341 |
Coastal Contacts Silvercorp Cash Cardiac Sciences Genuine Parts Café de Coral |
50% |
|
Equities (Short) |
TSX: XFN |
iShares CDN Financial |
-50% |
|
Total |
|
|
100% |
Cash is not held for a return at these rates, but because it may come in handy. I prefer US dollars to Canadian cash these days for the simple reason that a US dollar has more purchasing power without a materially worse fiscal position. Cash in fundamentally undervalued currencies pegged to the US dollar (like the HK$) also looks sensible here.
Precious metals in the long run will be worth much more than cash and so deserve a bigger weight. My value favourite in this category is silver, but all should do well. US inflation-protected Treasuries are an alternate means to preserve capital.
And as for equities, I’m happy to own a boatload, provided I offset my favorites against short positions in the handmaidens to Canada’s housing bubble that populate iShares Canadian Financial index. In their stead, I propose a selection of businesses that earn money from online contact lens sales, silver mining, pawn broking, auto repair and fast food meals in
Are you ready for the Salt ‘n’ Pepper Shaker of 2010’s financial markets? Hold on tight, it should be quite a ride.
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Posted by: Photography Dissertation | January 21, 2010 at 07:36 AM