2010: The Year Bankruptcy Paid Off (year end review)

From GM to CIT to AIG to C to LEA, 2010 was the year when moral hazard went out the door. Companies with fucked up balance sheets, like SIRI, CPWM and FTK, stared into the abyss and spit, pissed and shit in it. It was a year that transformed losers into winners, sort of like black magic, but only cooler. We threw hundreds of billions at the wall and prayed for it to stick. Luckily for us, it did!

I understand why investors were hesitant to invest this year, as the normal order of things disconnected. Markets aren’t supposed to go higher on the prospects of sovereign nations going belly up; but they did, nonetheless. At the same time, the main drivers of growth, namely China and Brazil, sat out the great rally of 2010, allowing western nations like Germany and the United States to steal their plantain fried rice. It all makes sense, if you think about it. Like it or not, we are highly levered to Chinese growth, same with Germany. And, like Senator Gint likes to say, “as long as China is pegged to the U.S. dollar, we are their central bank.” In essence, Bernanke is the overlord of all things Chinese, raping and pillaging along the way, a local magistrate if you will.

Commodities were big standouts, with outsized gains in Cotton, Corn, Coffee and pretty much everything but Natural gas and Cocoa. They went up on the prospects of a weak dollar; but the dollar went up too, so go figure. Treasuries were a non-event, year over year, and tech stocks surged higher, led by lunatics invested in NFLX, PCLN, AMZN, CRM, APKT and FFIV, just to name a few.

As the year winds down, expectations are very high for 2011. You will see my predictions for 2011 in about a week. To summarize my notes, I think it will be a mixed bag.

At the moment, I am thinking about adding some dollars to municipal bonds, in light of robust January seasonality. And, I am pulling in the reigns here, upping my cash position close to 40%. It is tempting to short a little, if only for a hedge. However, I’ve been burned too many times this year, banking on disaster. I’d rather lower my beta, via large cash position, and buy dips. If I was interested in hedging, I’d bet against oil. But that seems like a lunatic trade now, especially in light of all the snow on the ground and asset allocation models pining for $100 crude.

In short, celebrate the New Year’s without fear. Lighten up the load and take some hard fought gains. There will be plenty of time in 2011 to buy Maseratis and new homes, off of equity gains.

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