Economics for One

This is an interesting time to be investing.

It reminds me of the early 1990’s.  A lot of uncertainty.  A lot of opportunity.  Prices fluctuating.  Irrationality in some areas, but not across the board, much like during the peak of the bubble from 1999 to 2000.

There are some great opportunities in equities right now.  Some long — some short.

I’ve been heavily weighted in energy stocks for the past 3 years, and it’s been a great ride.  But oil won’t go up forever.  The upstream oil producers have benefited from the high price of oil, and they will suffer when it goes down.  And down it will go; despite the claims of increasing demand in China and India, there really is no fundamental justification for the current high price of oil.  It’s a bubble, and it’s clear the large oil producers understand that.

Likewise the ongoing, slow-motion real estate collapse has created some impressive possibilities.  Who is going to buy up all that foreclosed real estate?  And what about the houses that are not in foreclosure?  They may be perfectly good homes, but they won’t be able to command their previous prices.  When prices get irrational–and they will!–gobble them up while you can!  Rent them out and hold onto them.

And watch out for the financial sector.  A lot of companies got caught up in the chase for a quick buck, and are over-dependent on the real estate market.  As that bubble collapses, it’s likely to have a devastating effect on some banks.  The only financials I’m holding onto are Goldman Sachs, Bank of America, and a small position in Schwab.  I also think Wells Fargo remains pretty good.  But these stocks need to be monitored closely, as they are decent issues sitting in the middle of a minefield.

I don’t tend to do a lot of short selling–but there may be some great short opportunities in the financial sector now.

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I recently met a man who tried to impress me with his entrepreneurial credentials.

“I’ve always been an entrepreneur!” he proclaimed.  “When I graduated from school I immediately joined a little startup, named Yahoo!”  He looked quite pleased with himself.

He was in his early 30’s.  I thought about it a moment.  “So, how may employees were there?”

“Just 350 back then.”  He answered smugly.

Pause.  “And when did they go public?  Wasn’t it around then?”

“Well, yes.  Just before I joined.”  Now he looked uncomfortable.  Or annoyed.  Either way, he seemed to realize I was calling his bluff; I quickly changed the subject. Read more…

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