The following are the major trends that we are anticipating will continue to develop over the coming years.  We will continue to watch these trends and look at ways to profit from them through regular blog content.

Inflation / Currency Debasement / Interest Rates

The time is coming soon when Ben Bernanke and the Fed will face a no-win scenario of raising rates to battle inflation but risk choking off an economic recovery.  For now, deleveraging forces are keeping inflation in check.  When these forces subside, inflation will most likely take off.  Even if we don’t have traditional inflation, currency debasement is very likely as we pile up the debt as a country.

Update (11/10/09): Long GDX since $29.74.  With gold hovering around $1100/oz., this position is up sharply.  I’m looking to continue to add to the position on dips as I’m a believer in the long term inflation story.

Update (12/28/09): While gold is well off its highs of over $1200 and seems to have “lost favor” among many, this is the best time to add to position in my opinion.  Long GDX, CEF, GLD, SLV.  I also just recently sold some covered calls on GDX for some short term cash flow.

Update (4/10/10): I’m very concerned with some of the rumors that the gold/silver ETFs like GLD have some major risks in that they might not hold as much gold as they say they do.  I’ve turned my interest to physical holdings.  Still holding a large GDX position since GDX doesn’t hold metals but stocks of mining companies.

Update (5/11/10): Gold has recently rallied and is over $1200/oz again.  In the news is the start of the unraveling of the Euro due to the increasingly apparent sovereign debt crisis.  This will likely continue to unravel for years, not months.  Long GDX, CEF, SLV and some physical holdings.  Buying on dips; looking to get into GDXJ on dips.

Excess Capacity in Retail, Housing, Commercial Real Estate

There is a huge amount of excess capacity built up over the “boom years” that will most likely take years to work out.  We have way more retail space than we need and way more houses built than we need.  We expect that empty store fronts will be a very present part of the new retail scene which will continue to hurt anyone involved in commercial real estate.

On the housing front, there are entirely too many homes built.  Federal programs such as “First Time Home Buyer’s Credit” will do everything possible to move future demand forward to today, but how will we move future-future demand to the future?  It’s an unsustainable path.  Meanwhile, home builders, desperate for business, are still building new homes.

Update (11/10/09): Short commercial real estate players SPG, VNO, SLG.  Also, short companies exposed to the consumer: M, WSM, BC, WYNN, COF.  With the rally in 2009, all positions are deeply in the red.  Am still holding these positions.

Update (12/28/09): Stopped out of most of the commercial REIT plays.  Will consider re-shorting SPG if it breaks below $80.

Update (2/8/10): Short SPG since $80, short BC also – I believe the fundamentals continue to be awful in these areas, but you have to use technical indicators for entry points on any short positions.  Be careful. Closed position.

Update (5/11/10): No positions. Tough to fight the printing press.

Oil / Energy

I believe that the long term trend for the price of oil will be higher based on fundamentals such as increased global demand, a decrease in the easily accessible oil supply and instability in regions such as the Middle East.  Oil is also a potential inflation hedge which is a bonus.  You can read a more detailed fundamental explanation here.

Update (12/7/09): Long EVEP since $25.89.  Provides fantastic cash flow through above average yields.  Looking to add on dips.

Update (12/28/09): EVEP is over $30 a share now marking a nice profit since entering the position earlier this month.  I’m still holding.  Also, I’ve added a position in XOM after it fell a few bucks per share after acquiring XTO.

Update (2/8/10): Closed out my XOM position as it fell below my stop-loss target.  Still long EVEP.  Waiting for more correction before adding to positions.

Update (5/11/10): Long EVEP and collecting dividends.  Looking to add on dips.

Defensive Dividend Stocks

For my long term portfolio, I’m working on building up positions in defensive names with nice dividends.  These will typically be multinational companies hopefully with significant revenues outside the United States.  The key with these names is to be extremely patient and accumulate only at very attractive buying opportunities.

I believe that the American economy will struggle for years as we are in a secular bear market with multiple factors working against it.  This doesn’t mean there won’ t be short term rallies.  As such, I like safe companies with strong cash flowing dividends.

Update (1/20/10): Long Philip Morris Int’l (PM) for several years.  Recently sold some covered calls at a $50 strike to boost my cash flow.  Am hoping to buy more shares in the low $40’s.  Also, looking to buy Wal-Mart (WMT) on anything below $50.

Update (4/10/10): Recently initiated participation in the McDonald’s (MCD) DRIP – dividend reinvestment program.  This will be a long-term, slow accumulation of shares in a great, defensive company.  PM, MCD, WMT seem to be my favorite three defensive stocks.

Update (5/11/10): Initiated participation in Wal-Mart (WMT) DRIP.  Long PM, MCD (DRIP), WMT (DRIP).

Technology

Technology is still a sector in America that is very profitable and still a major leader in the world.  Companies like Apple, Google, Amazon and Microsoft have giant cash reserves and are still making money hand over fist.  Innovation is still alive in America, even as the economy as a whole deteriorates.

These stocks can easily get overvalued so being patient for attractive buying opportunities is mandatory.

No position at this time

China

I’m a big believer in the long term story in China.  Sadly, I also think that unless serious reforms are made, the American economy has probably seen her best days.  I’m looking to build positions that will benefit from China’s growing economy over the next several years for large returns down the road.

The Chinese stock market easily gets very over-heated, especially during the 2009 rally; therefore, it’s important to wait for good buying opportunities.  Remember, this is a very long term trend that we’re looking to be a part of, so we may wait months, even years for attractive buying opportunities.

Update (5/11/10): Added a small position on a company that sells to the Chinese market – stock is HEAT — Still think China market has to come down, but I hit a low bid on this stock that I had in place for some time.