Things Our Man’s pondering

In the words of President Eisenhower; “plans are nothing, planning is everything” - here are some of the things that Our Man’s been looking at.  They’re a mixture of some of the existing ideas in book and some new things that Our Man’s been reading up on and thinking about.

- "Lower for Longer” trades
As readers will know, Our Man believes that the Fed (and ECB and BoE, in Europe and the UK) will ed up having to keep interest rates lower, for a far longer period, than most people expect.  This is because I believe the ongoing impact of debt-deflation mean that the economy remains weak without the support of the government (either directly through Stimulus, or indirectly through Quantitative Easing).  While it is hard to execute this idea very efficiently (i.e. by using interest rate receiver swaptions) given the instruments that Our Man can use, the idea is reflected in the portfolio.  At the moment, this is predominantly through being Long 20Yr+ Treasury Bond position, though over time this exposure may be expressed through Long 20Yr+ Treasury Bonds, Zero-Coupon Bonds and options on either of these.  In the short-term however, Our Man would like to see the idea of inflation and the need for rate rises further embedded within investors’ expectations before increasing or re-adjusting the position.  As such, while it will hurt the NAV in the short-term, don’t be surprised to hear Our Man cheer some of the following: month-on-month CPI numbers of 0.3-0.4% in the next few months, a European rate rise (with firming expectations of more to come - something that could potentially encourage Our Man to increase the S Euro position too), and a strong Non-Farm Payroll number or two.

- Tobacco & Other Deflation-proof Staples
These businesses tend to be somewhat…well, boring!  As such, their stocks are the kind of ones that investors ignore in these fabulous (bear-market) rallies.  However, that also leaves opportunity for those less excitable.  For example, Altria is up a mere 67% from its lows up a (paling in comparison to the market’s c100% rise), but people seem to forget it is also trading above its 2008 highs and pays a healthy 6% annual dividend yield.  Furthermore, as we all know, while smoking isn’t pleasant, it’s certainly a habit that’s difficult to kick.  Now all Our Man needs is to persuade Mrs. OM to drop her valid moral objections, and these names will finally make it into the portfolio.

- China
This is a topic that Our Man has written about before and in the next week or so, we’ll be checking in to see whether the time is right to increase the small exposure to the Short China thesis.

- Japan
Before Friday’s earthquake, Japan was at the very top of Our Man’s list of things that he was cogitating, reading about and working on.  However events have changed that and it goes without saying that the human impact is far more important than the uncertain economic toll of the earthquake and tsunami.  As for Our Man’s thoughts, prior to Friday the outline was that a continued appreciation of the yen (vs. the USD) would eventually set the stage for the Nikkei to have an inflation-fueled run at its all-time high.  We shall have to see what happens in the coming days (and/or weeks) with the impact on Yen repatriations and Central Bank policy, let alone a whole host of other issues, all unknown at this point before making any major decisions.

- Previously discussed Themes: Energy Efficiency and Storage Theme and Water Theme
Both remaining attractive secular themes, though it has been hard to find ETFs or stocks that are not over-valued at this point.  Our Man has some names on his radar screen and continues to look for interesting opportunities in the respective spaces.

- Value Ideas
Our Man continues to scour for interesting value ideas, with a couple of names like Capstone Therapeutics (CAPS) and REalNetworks Inc (RNWK) almost at attractive levels.