Theme in 2008 (Part 3)

Markets finally closed today, which ends the 2007. Next year is a brand new world and it's all due to your prediction.

I am never a good fortune teller, but as I said everyone needs a plan ahead before they commit their money, so I want to finish off the theme in 2008 in here.

I'm not going to pinpoint specific sectors, funds or stocks but I'll generally state what I think may come up. Let's start with what we had in 2007.

1. If we talk about 2007 we cannot skip the topic of subprime mortgages blown up. Many times I heard news or articles said the subprime issue is small relative to the whole market size and so on and so on... I'm tired about reading it. If there is no additional insight, those articles look the same to me. I want to say, subprime taught me a lesson that, there is always something you don't know about a public company, and that something can blow your investment up. So, trust less about any public company, unless you know so much like an insider. Now how big is the subprime issue? Well I don't know. I know only one thing, there are (still) many ways to interrupt free flow of information about anything on earth so nobody can really make sure how big the impact could be. To say the market is small and will only have small impact is like to say people only gamble on casino table but ignoring all the side-bet. You see what I mean? Whatever people have put on the table does not represent the whole picture, as the size of the side-bet can be so huge that it can easily be many times of the amount on the table. If you don't want to bet on any single bank or brokerage, I suggest to use UYG and SKF, the ultra long and short of S&P Financials, which are what I'm going to use in 2008.

2. I already talked about China in my part 1. I don't want to repeat much here. Just want to add a bit more. The first one is CAF, which is a closed-end fund of Chinese A-shares. Since in North America there is limited way to invest in A-shares so CAF is a good vehicle. The second, TAO, is a new ETF of China real estate market, which composes of the mix of Hong Kong and Chinese real estate companies. Lastly, there are still quite a few pink sheet over-the-counter ADRs available in US. Do not expect a high trading volume nor lots of news, but we do not have many choices.

3. US market as a whole I think will whipsaw up and down throughout 2008. I know there is a president election in 2008 and people believe the FED will do anything to make the market goes higher. With the FED in the hot spot to balance between lower the rate and higher inflation, it's hard to do than to say to lift the market. So overall, I will only go long on strong stocks but long and short the ultra indices from time to time. With the invention of ultra long and short ETFs, one should learn how to make use of them to capture extra profits or at least, to protect the portfolio from any downside risk.

4. Hot sector. Well I can't tell you which sector will become hot in 2008. But from time to time there are hot sectors, there is no doubt. In 2007 I saw bulk shipping and solar energy. But I was scared I could be late in finding them so I didn't invest in any. Look at DRYS as an example of shipping stocks, it went all the way up from the teens to as high as $131 before it retreated, 900% up in about 9 months. Look at FSLR as an example of solar energy, it went all the way up from $30 to about $270 as of today, again 900%. So you see, if you can spot a hot sector early, the potential is humungous.

Before the new year of trading begins, let's have a good rest tomorrow.