After last week's tumultuous markets, will the markets settle down this week or will they continue to be volatile? My guess is that the markets will continue to be volatile. The reality is, everyone is trying to guess what everyone else will do. And with the increased and unpredictable volatility, the quant hedge funds are likely to reduce their leverage and thus their exposure to the markets.
During the past week, some of my positions took a pounding. Blue Nile, Inc. (NILE) was roughly $88 last Monday and closed the week at $74.67. Blue Nile went down on housing fears, profit taking, and generally a weak retail outlook. If I were a more agile trader, I would have sold and repurchased Blue Nile. That said, I am content to continue to hold Blue Nile. I believe it will do well—especially compared to traditional brick and mortar jewelry retailers—even in a difficult environment.
Pan American Silver Corp. (PAAS) fell from about $28 on Monday to about $21.50 on Friday. Silver prices fell and many of the commodity stocks were clobbered as the momentum players exited. Should the U.S. dollar come under pressure, gold and silver could be large beneficiaries as people look to precious metals as a defensive play. Moreover, the BRIC countries are likely to continue expanding regardless of what the U.S. does. And they will continue to devour commodities such as gold and silver. Because I remain bullish on silver prices and because Pan American is an extremely well run mining company, I will be looking to increase my exposure to Pan American.
That is one the great things about periods of extreme volatility—they allow you to reposition your portfolio. You can close out some of your longs and purchase some of your favorites at favorite prices. And for those that are extremely agile traders, they can make a lot of money from the day to day swings in prices. I am not an agile trader, however, so I do not take advantage of the volatility in that manner.
As the week kicks off, I am going to be paying close attention to the investment banks for more signs of weakness; the Fed; U.S. dollar; investment bank stocks; commodities, particularly silver and gold, and oil; and the general mood of the market. Asia opened the week strong, but so far, our markets have reacted cautiously. It promises to be an interesting week.
Calgary model Judith Aldama with her Elvis Presley sneer is featured in the photograph, which is hosted at Flickr. If you click on the picture of Judith, you will be taken to where you can view a larger version and see even more pictures of her.
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