Urbanomics ~ Portfolio Plays

It has been a busy summer for me. As you can see from my updates I have been consumed with trying to buy a home. Lately, I have increased my number of posts and this could probably means one thing. CLARITY
I won't admit that it is a perfectly clear picture as to what may be coming down the road but I would say that I have a better feel as to how things may continue to play out.

My personal belief is that this rally is a bear market rally. I will admit that it is a rally nonetheless and you can't try to go against the trend. See a post that I wrote away back about sticking with the trend: Bad Banks Will Rally. So here are a quick summary of my points:

- The goverment's combination of TARP, stimulus, and incentives (Cash for Clunkers, Homebuyer Tax Credit) have been the right recipe to bring the economy from lifelining.
- Unemployment continues to be the thorn in the side of an economic recovery. As a person that is near to the streets, this and foreclosures are the most important issues.
- The economic data is starting to trend up and when you've hit the bottom there is only one direction to go. We've seen gas, homebuilders, banks, credit card delinquencies, and even unemployment start to tick up


After considering these points, I believe that things are getting better but very SLOWLY. I understand that unemployment is a lagging indicator but I think things are different this time. High umemployement, which I believe will continue to rise...is a problem to a primarily service driven economy. This will be a drain on most American businesses ranging from restaurants, homebuilders, banks, etc. I believe businesses have benefited immensely and are recovering but I think the everyday person is struggling to adjust to the NEW NORMAL. The new normal for businesses mean that cost cutting efforts will continue for long while and hiring will not come back as new revenues will be hard to come by. I think that this is an "incentive" driven rally and a pullback is soon to come because nothing has really changed. Money has been pumped to save starving business but not many industries have really been punished for their actions which got us here. This is the fundamental back drop of moral hazard...no one has learned their lesson. If you need proof, then just look act the actions of the big banks once they got out from underneath TARP. I believe the waste and excesses have not been rung out of the system and the average person on main street is left holding the bag. That bag results in job losses, delinquencies, debt, possibly higher taxes, and UNCERTAINTY. I now bring my lunch and limit my Patron shots due to this uncertaintly. So here is my portfolio which reflects an uncertain world that appears to be getting a little bit clearer:

Stocks based on my view of the ecomony:

TIP - Treasury Inflation Protection EFT; inflation will be coming and this is where the smart money is parking some of their stash
DUG - Ultrashort Oil; if you read above, when the economy improves so does the price of Oil. But high oil is not good for this struggling economy
GE - General Electric; an industry stallworth that should rebound, especially since GE Finance won't be the undoing of this company
BBY - Best Buy; this is where I like to shop and now that Circuit City became a casuality of this economy its more pie for Best Buy (hey that rhymes)
GLD - A Gold ETF; this is an inflation protection move.

Stocks based on my screening:

EPD - Enterprise Partners; this is a natural gas pipeline company that has an outstanding dividend and it prime position it commodities move higher
IBKR - Interactive Brokers; asset managers and investment banks that are still around are benefit from the volatility and new business
GLW - Corning; this maker of LCD displays will stand to benefit as flat screens continue tobe the 'it' thing to buy. I can't wait to get my 52 inch bad boy

Do you have hops? - Price Hops

I am sitting back, watching a basketball game and I would never ask Kobe Bryant this question..."Hey man you got hops?" Because he and anyone within 100 feet would probably come running up to me, smack me, and then ask why the hell I would ask a dumb question like that. Of course Kobe has hops, he can jump out of the gym!

Well that is not the only thing that has hops lately. For example, most of the things people buy on a daily basis have experienced a term I call "Price Hops". That means that the price has been skyrocketing, off the chain, through the roof, or flat out way too expensive. Take a few basic staples - cheese, milk, eggs, bread, and gas and you tell me that when you go shopping or driving that the you are pulling out more cash. I call it "Price Hops", but you might here the market call it INFLATION.

This definition was provided by Investorwords.com:

Inflation - The overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Over time, as the cost of goods and services increase, the value of a dollar is going to fall because a person won't be able to purchase as much with that dollar as he/she previously could.
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Urbanomics Constant Reminder: Don’t dismiss the facts that are in front of you (trust yourself)

I came up with a term called "Price Hops" and its no wonder that the price of the things that you are buying on a regular basic are costing you more. Inflation is on the rise and market is taking notice by watching the Producer Price Index. And even if you take food and gas out of the measurement, the index would still rise.

Some of the factors affecting inflation:

The price of oil keeps rising - Upcoming inventory data and weather are big factors

The demand of steel, copper, wheat (commodities) is rising (Wheat is at an time high)

The prices of things America imports are up roughly 13% (highest levels since the 80s)


How to profit during a tough economic period (follow the industry buzz):

Buy Large Cap companies, especially Multinational Companies
Buy the Commodities that keep rising - precious metals, mining, wheat, oil
Buy the Equipment Maker of agriculture and oil refiners
Buy the stuff people buzz about even in tough times

I know you want names:
- AK Steel (NYSE: AKS) - great play on the rise in steel
- Celanese (NYSE: CE) - roughly 2/3 of sales come from outside of US
- Use Exchange Traded Funds (ETFs) - JJN, USO, GAZ (examples of funds for nickel, gas, oil, gold, steel)
- Buzz items - No matter how tough the economy is people can't do with those darn flat tv's, dvd's and entertainment programs; I picked up on Zacks.com momentum picks...and for two days in a row they recommended Liquid Crystal Display providers:
AU Optronics (AUO)
Corning (GLW)
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URB UPDATE: The beauty of DOLLAR COST AVERAGING pays off and Avid Technology (recent rise allowed me to recoup all of my loss and I sold my entire position to break even. (More to come on how we turned a bad stock into one that didn't hurt us)
Disclsoure: I sold AVID