Bank of America (ticker BAC) is a fascinating stock at the moment.  It's trading like a bankrupt penny stock, but it's priced around $12.50.  There's huge volume and extremely violent price swings.  On any rational basis, BofA is bankrupt, but it's being propped up by the Fed.  At some point, it almost certainly has to go, but God only knows when that might be.  If you have an extremely strong stomach for volatility it's a great short, but you have to be prepared to take the position up the ass for a while.

One way to try capture value in the market is to trade around the relative valuation of gold, silver, and DBC (the three components of my 'wealth-preservation fund').  If we're treating gold and silver as alternate currencies, and DBC as our inflation benchmark, we can expect that (in the long term) they should move roughly in tandem.  In the short term, however, there can be a lot of price volatility.  The idea would be to sell gold and/or silver if they get too far ahead (in percentage terms), and buy DBC with the proceeds.  When the precious metal(s) came back into line, we'd deallocate from DBC back into gold and/or silver.  This strategy would have worked very well during the recent silver ramp-job as it got way way ahead of both DBC and gold.

 I love Mish's writing and he's a valuable source of information, but at some point he's going to be carted away to a rubber room screaming 'There is no inflation!' as gas hits $10/gallon.  This is a perfect example of the difference between theoretical and practical economics.  In Mish's theoretical monetary terms there may well be no inflation, but it certainly exists for the average person.

For real-world examples of practical economics, one can look to the earnings of producers of consumer goods, and expect to hear the term 'margin compression' a lot in the near future.  Denninger is ahead of the game on this, with the earnings results of both Dean Foods and Campbell's.  In short, their input costs are way up and they have no pricing power due to the dire circumstances of the average consumer.  Result:  stock goes into the toilet.

Posted by: Hermit Dave at 10:52 AM | No Comments | Add Comment
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