Investing: A Bear's Bets on the Future

Every few months, I host a dinner party in New York with my favorite analyst and money manager clients. They tend to be fairly skeptical about the stock market. Someone will break out gold coins and say he's a big owner. Others will talk about their gun of choice in case the economy collapses. It can get very dark, but at a recent dinner, guests were much more optimistic. Some were saying that profits look great and that U.S. stocks should do well after we've already rallied 75 percent. So it appears the grizzlies have capitulated.

The U.S. is in the throes of a secular shift in consumer behavior, and consumers will retrench. The effects of the housing bubble bust will linger. People want to believe the good news, but they shouldn't let themselves be fooled by the continued growth in consumer spending.

I see some short-term explanations for why it's up. One, unemployment insurance benefits have substituted for wage income. Two, for high-end consumers, tax refunds are a major story—they're running about 10% ahead of last year. This goes a long way toward explaining strength in things like iPad sales. A third factor is largely unquantifiable, not to mention cynical. People have stopped paying mortgages, and banks have been so slow to kick people out of homes. If you're saving $1,000 a month by not paying your mortgage, why not buy an iPad or take a vacation?

Looking at the end of the tax refund season—with unemployment benefits extensions petering out for some, the end of the Federal Reserve's support of the mortgage market, and the home buyers' tax credit expiring—it feels like a perfect storm is brewing at a time when the market has become almost frothy again. When the sugar high wears off, we're going to have a renewed decline in home prices that will lead to a new round of credit hits. It will shock many that we're not back to 2007's strong economy.

I'm keeping my powder dry. I'm long Treasuries because I think there will be a moment when people realize the economy isn't as strong as they think. At the same time, there will be a flight back to safety. Both forces should benefit Treasuries. I'm also bullish on oil and gold because emerging economies will want those resources. I have more than 50% of my portfolio in cash and gold. I have physical gold, money in the SPDR Gold Trust (GLD) [an exchange-traded fund], and gold mining stocks. I don't view gold as being in a bubble. To me, gold is a currency—my protection against further debasement of the dollar.

As for stocks, I would overweight U.S. multinationals that sell things everybody around the world is going to want to buy, like Procter & Gamble (PG). I would avoid high-end-retail stocks. I personally have a short position in the Nasdaq 100 index, and I would never recommend that for individual investors. They are better off waiting to figure out where the growth opportunities are.

The Stats: Stephanie Pomboy is founder and president of financial research firm MacroMavens, which serves institutional investors, including global hedge funds and some of the largest U.S. mutual funds. She worked with economist Ed Hyman at ISI group for 11 years before starting MacroMavens in 2002.

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