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Trade Alert – Some active portfolio management with an update on gold and banks

February 26, 2013 by Cody Willard Leave a Comment

Today I want to review a few positions in the portfolio and continue our endless pursuit of maximizing our long-term upside while minimizing our long-term risk through active portfolio management.

I entered Baidu back in July as a technology platform play that doubled as exposure to China. It’s a rare time that I invest in a foreign-based entity, as it’s hard enough to find and understand and believe in US-based companies and foreign stock markest are rife with fraud and scams. Baidu rallied a bit afterward, but has been a loser since then as China’s stock market has struggled and as competition in China search heats up. I still think Baidu is probably the best technology play for China, but I’m going to cut my losses and get back to focusing on safer, US-based companies and investments.

On the other hand, we’ve finally started to see some new cracks in the banking industry and their stocks got pummeled in Monday’s stock market reversal. I’ve been seeing similar charts throughout the blogosphere and occasionally in the mainstream media about how bank earnings are at historical unheard-of heights as a proportion of our economy’s overall GDP.

Bank earnings as a % of GDP – Source T2 Partners, Willard Media Ventures, Federal Reserve, Marketwatch

That chart is from 2007 and the more recent ones have that hockey stick effect going straight up to the right. More to the point, the stock market itself seems to have run way far ahead of even that hockey stick of earnings chart. Goldman Sachs, here at historically unheard-of peak earnings, is, through all the endless subsidies is gets, going to “earn” maybe $7 billion this year, and the market is valuing its equity at more $70 billion. JPMorgan is going to work its subsidies and government handouts to the tune of “earning” some $18 billion this year or so, here at these outsized peak earnings, and the stock market value is about $180 billion.

I’ve been slowly but surely trying to get short these financials and last week I added to Goldman puts and added to my existing MS puts in my own portfolio. Those puts are up big as a result of Monday’s market crash and I think we might finally be embarking on an historical reversal to the banking industry’s profitability profile.

Gold, meanwhile, is looking like it might be trying to bottom here since I suggested starting to scale into the physical commodity itself in last week’s newsletter. And with the Italy/Euro-crisis heating up, along with our own endless Republican/Democrat fake game of chicken, there’s a lot of potential catalysts for a big move in both gold and our aforementioned banks.

 

 

 

 

Related posts:

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Trade Alert: The algo's and media suddenly fear Recession
Trade Alert: Two new platform buys and a closed pair trade
Trade Alert: Crashy Market And Here's How Inflation Will Play Out Over The Next Two Years
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Filed Under: Trade Alert

Disclosure: At the time of publication, the firm in which Willard is a partner and/or Mr. Willard had positions in some of the stocks mentioned above although positions can change at any time and without notice.

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This does not constitute an offer to sell, a solicitation of an offer to buy, or a recommendation of any security or cryptocurrency or token any other product or service by Cody Willard or any other third party. Furthermore, nothing in this is intended to provide tax, legal, or investment advice and nothing in this should be construed as a recommendation to buy, sell, or hold any investment or security or cryptocurrency or token or to engage in any investment strategy or transaction. You are solely responsible for determining whether any investment, investment strategy, security or related transaction is appropriate for you based on your personal investment objectives, financial circumstances and risk tolerance. You should consult your business advisor, attorney, or tax and accounting advisor regarding your specific business, legal or tax situation.

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