For Justin Uyehara, 30 days is a long-term holding. Investors who trade as much as he does often end up making more money for their brokers than for themselves. Yet for almost 9 years, Justin has averaged better than 32% a year handily beating the S&P 500, including dividends, by more than 26% a year. This year is turing out to be another good one for him. He is up 23% year-to-date, and up 39% for the past 12 months.
Question: Justin, why do you have such a short time horizon?
Answer: Basically its because I don’t know what’s going to happen today or tomorrow. I would like to invest for the longer term but as the government expands its role in the economy, the economy becomes dependent on political factors that can change on a dime. Investing for the long term requires one to have faith that the government will eventually implement pro-growth policies. I don’t see that happening right now, but politics changes every day, so I think it makes sense to have a short investment horizon.
Question: Tell me more about how your view of politics affects your market outlook?
Answer: I think the government has become the driving force in the economy. I am no expert about what needs to be done, but what the politicians have done seems to have created a lot of uncertainty. A good example is Dodd-Frank which I think has slowed down the financial sector because no one knows how it will be implemented. The President’s healthcare plan is another good example where the government has created uncertainty in a large part of the economy. A third big uncertainty is whether the government is going to deal with the deficit by raising taxes, cutting spending, or devaluing the debt through inflation. Having so much up in the air does not promote growth and its not good for the market.
Question: If one shares your views, how should one invest?
Answer: I see no reason to be long the market right now. I am negative on the dollar and U.S. politicians, but I’m even more negative on the euro and European politicians. Things seem more unstable in Europe than in the U.S. right now. If the euro survives it will be because the Germans imposed austerity measures that won’t promote growth, and that’s the good scenario. I think both the dollar and euro will go down relative to gold. but near term the euro will go down more. One of my larger positions right now is EUO which is an ETF that goes up when the euro declines against the dollar.
Question: Are you also betting on gold?
Answer: Yes, I own a gold ETF (GLD). People are losing faith in all paper currencies. Over the long term GLD will probably be a big winner.
Question: You are negative on the dollar and U.S. politicians, yet you own TLT, an ETF that is long U.S. Treasury bonds?
Answer: When you combine instability in Europe and a slowing U.S. economy you have a recipe for higher U.S. Treasury bond prices. In addition, the Federal Reserve has as much as promised us that interest rates aren’t going to rise for at least the next year so the downside risk of TLT looks limited.
Question: You said you don’t see any reason to be long the market. Would you short the market right now?
Answer: I recently bought SDS, an inverse the S&P 500 ETF. U.S. politicians have already shown us they are willing to spook the market just to improve their political bargaining position. I expect they are going to spook the market again as we approach the deadline for the super committee to come up with $1.5 trillion in spending cuts. I also own TWM, a double inverse the Russell 2000 ETF because the uncertainly about Frank-Dodd is making it hard for banks to lend to smaller companies.
Question: Do you see much hope for a more optimistic outcome?
Answer: I’m hoping that the private sector in the U.S. can figure out how to grow on its own because I don’t see much that the government is doing to help it. In the past the government was much smaller so it didn’t exert as much drag. But now it feels like the government is the driving force and they are driving us the wrong way. As long as this is the case, we cannot stay long on anything for the long term. In a volatile market that is heading in the wrong direction, if you don’t trade it, you won’t make any money.
Thank you Justin.
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In this column, I bring you investing strategies from the best investors I have tracked at Marketocracy.com. To review Justin’s performance in depth, click here.
Disclosure: I am the portfolio manager for mutual and hedge funds advised by Marketocracy Capital Management, an SEC registered investment advisor. Before relying on the opinions expressed in this article, you should assume that Marketocracy, its affiliates, clients, and I have material financial interests in these stocks and may hold or trade them contrary to these opinions when, in our view, market conditions change.
