Portfolio Allocation Strategy

Written By Brian Hicks

Posted September 2, 2009

This time last year wasn’t fun, especially if you were long the market.

The Dow was looking like a bobbing dinghy on the Niagara River, about to go over the Falls:

wealth daily chart 1

I was nearly 100% in cash. Some of it was in my house in a safe guarded by a Sig-226 and two Remington 870s.

In the months prior to September, I had accumulated enough rice to last my entire neighborhood for about a week.

You see, we were staring into the abyss. . . only days away from the local ATM telling you to come back in a week or two to get your withdrawal cash.

All the dire predictions by Greg McCoach about toxic derivatives were about to come true.

When I warned my friends and family to take cash out of the bank and hide it in their house, they literally thought I was nuts.

"C’mon, it can’t be that bad. Besides, aren’t our savings insured by the government?" they would say.

I had no idea how far indoctrinated the America public had become. But then again, nearly 80% of Americans believed invading Iraq was a good idea. The other 20% thought the United States and Israel were behind 9/11!

A year later. . . the markets have stabilized.

In December of last year, I started to put a lot of capital to work in stocks. Probably 50% of my cash holdings went into oil stocks like Baytex, Kinder Morgan, small junior miners like Argentex. . . and macro trades, like the ETF SPDR S&P Biotech (NYSE: XBI).

My readers and I are up big. In fact, some have doubled their portfolios this year alone.

But I’m not taking any chances. And I’m concerned that everybody is too optimistic on this perceived "recovery" while the smart money continues to be cautious — if not outright fearful.

My New Portolio Allocation Strategy

In the past week, I’ve been reallocating my portfolio. I don’t want to get caught with my pants down, heading into — historically — the two most volatile months of the year.

I have initiated several short positions to protect the profits I already have.

Here are my new positions:

1. UltraShort Dow30 ProShares (NYSE: DXD)
2. UltraShort FTSE/Xinhua China25 Proshares (NYSE: FXP)
3. Direxion Daily Financial Bear Shares 3X (NYSE: FAZ)

I’m also looking to go short on commercial real estate.

According to a recent San Francisco Chronicle article on the coming commercial real estate crisis:

Perhaps even more troubling is the fact that about $814 billion in outstanding commercial real estate loans nationwide are scheduled to come due between now and 2011, mostly on loans originated five years prior. In San Francisco alone, 75 percent of the city’s top-end downtown office buildings traded hands in the past four years.

Commercial mortgage defaults are tied directly to employment. Persistent and high unemployment, along with companies’ reluctance to hire back workers despite signs of a recovery, has meant that much of the office space that emptied during the past year — about 1 million square feet — will probably not fill up anytime soon.

Read this article in its entirety, here.

One way to short commercial real estate is UltraShort Real Estate ProShares (NYSE: SRS).

I will probably build my position in a week.

Profitably yours,

brian sig

P.S. When it comes to the commercial real estate bubble, Steve Christ and Ian Cooper have called this one from the very start. So when I read all about it on Monday in the Wall Street Journal, I just had to chuckle. You see, Steve and Ian had beaten them to the punch on this one by a long shot. In fact, if you want to know how to really profit from this brewing debacle, click here.  Steve has this one down cold.

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