A Bourse Diary

Thoughts on stocks, speculation and ... life

Friday, May 12, 2006

Anti-cyclical speculation

Anti-cyclical investment is actually the key to the stock market success, and many (especially the “children of the 90th boom”) have understood it. The greatest speculators have often stressed it and have raised it virtually as a “dogma” of speculation. This also appears anyhow the "more uncomfortable", riskier and more difficult way to act on the stock exchanges, because the considerations from which an anti-cyclical investment is done, are extremely unpopular at the respective time. And it is also quite a risk: not only that one can be anyway wrong on speculative decisions, one must also take into consideration the old sentence that "the market can remain longer irrational, than you solvent ".

Now if I think a little bit courageously, I discover, actually, only two big areas which look after a perhaps favorable possibility for a anti-cyclical speculation: commodities, especially oil, and the dollar. Very briefly: Short oil, Long dollar.

If you are somewhat "frighten" now, you can see that the both are the most unpopular bets under the bigger investment classes or speculation markets (and if you do not, fancy please, I am your asset manager...).

Some days ago, when the oil price shot up, I had the intention to write something under the title (which I even still found as quite funny): "One more step and I will shoot, pardon … short". Well, maybe I do not have it with humor on it - and hopefully I will also not receive the possibility to prove my courage (i.e. we have seen the peak in oil). But, I have of course not forgotten that I haven’t expected such a rise in prices. I held the oil market already before fairly long time for too high and it was only good that I have simply kept away. And now it would be no big surprise if the oil climbs even further upwards. But maybe is sometime time? Sometime soon?

And, in addition, I think anyhow, that a Short in oil could be a good hedge of stock positions. Actually, this contradicts every common sense and learned correlations. Actually, one says "oil up, stocks down " and vice versa. The reasonable hedge would be: Long in oil, because with further raising oil prices the stocks might go down.

But I say the following to myself: the basic economic situation is rather stable, the valuations rather ok. It can be that this is delusive anyhow, but for bigger losses on the stock markets it requires quite a trouble. Should it come from the real economy (steep declining economic growth and/or profits, consumer's expenses collapse etc.), I want to see those oil speculators who will still hold on their futures contracts.

And if the high interest rates (due to inflation, thus above all due to high energy prices) press down on the stock exchange, they will press twice as strongly on commodities, which are now twice as more speculative to me. The save interest of bonds is the biggest competition of all speculative arrangements.

In brief: if the stocks go down, oil will also go down. And this will catch up the stock declines somewhat, while the oil price could go in a speculative downward spiral.

And about the dollar I write later.

Disclaimer - I do not make recommendations to buy or sell securities - I just post my thoughts, trades and opinions. Please read the disclaimer text at the bottom of the site


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Disclaimer: All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and are in no way intended to serve as personal investing advice and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Readers should not make any investment decision without first conducting their own thorough due diligence. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise. While the information provided is obtained from sources believed to be reliable, its accuracy or completeness cannot be guaranteed.