Betting On A Recession

A lot of money has been made over the during the past 6 months shorting the financials. I don't think this game is over but a lot of the profit potential has been removed because the options are now so expensive. The huge spike in volatility has made options so expensive on many mortgage lenders and brokers that the costs have increased as have the risks.

What areas are left to short in anticipation of the recession of 2008? I am guessing the retailers across the board although many have been killed. Eventually some of the market leaders - re: Goldman Sachs, Google, Apple, Research in Motion, and Amazon. Although these should be the last to be shorted as they have been so strong.

Energy, metals, and emerging markets should also be great shorts as I expect the rest of the world to slow in response to recession in the USA. What longs are possible? I think defense sector is still ripe along with the healthcare sector. The best bet may be to focus on shorting specifically and then use profits to purchase shares in some value plays at low prices.

One example of a value play that I like is WZEN. I purchased 300 shares of Webzen (WZEN) at $3.34 last week and may add another 300 shares of stock gets into the 2s. Webzen
is in the video game market in Korea, China, and USA and the stock is trading for about book value as they have not released any successful new game in 2 -3 years.

I also am interested in Aerovironment (AVAV). This is a defense stock that makes the miniature aircraft drones used for surveillance. I do not own it in my personal account but own some beneficially in an investment club that I'm a member of.

I also like American International Group (AIG). This may be one of the best possible value plays out there. Stock is getting sold and grouped into the financials along with the investment banks and mortgage companies. They do make some home loans, but the majority of their revenue is from insurance premiums and investment income. AIG has international exposure and sells insurance in most countries around the globe. It looks like the stock is at about $56 now and will go to $50 or high $40s along with the rest of the market DOWN over the next 6 months. I may sell some PUTs on AIG around $50 if it gets down there. That will allow me to collect $1K in premiums and have stock put to me at a lower cost later. I still have not built my position in AIG.

The only other fund or holding that I currently own is the Fidelity Gold Fund in my 401K plan.
It has performed great this year and I expect it to continue to own for the next 5 years. There will be a timing issue involved to some extent. When the recession in the USA is confirmed over the next six months, gold and energy funds will get dumped because there will be lower inflation expectations and growth expectations out there. Gold may fall back into the $400-500 range. This will be a great long term buying opportunity as when the US Government and Federal Reserve finish raping our country $500 dollars may not be able to purchase a Coca-Cola or a hot dog. Gold can be $10,000 an ounce or $20,000. It doesn't really matter the exact sum, because we are talking "dollars" here remember, not real "money." In order for something to be considered "money" - it must also be a store of value. The dollar falls flat on its face in that account.

I have begun to price my assets and think about the goods and services that I charge for in terms of Canadian Money, Gold, Oil, and Euros. It is a must to be able to evaluate your financial position in real terms during this time of change. Americans' wealth is falling every day and it is inflation that is robbing everyone.

My personal account has been in limbo after I blew it up last year. I have managed to refund it to about $7K but have obviously been pretty tepid about stepping back in aggressively. That said I am involved in couple partnerships where I have helped others who were interested short the mortgage lenders and real estate related stocks over the past 12 months. The results have been nothing short of stellar as the carnage in real estate and banking has been even worse than anything that I originally imagined.

I hope everyone is having a great year in the markets and in life.

Best wishes,

Ben