Summer Is Here

I’ve been pointing to the onset of summer for the past couple of months as a reason for lightening up the portfolio. Take a glance through recent articles to see many references to an impending oil price increase as summer driving gets underway.

That’s what’s happening now. Oil closed out the week at $58.47 a barrel, a tiptoe rise away from $60, which is a psychologically important price. Exceed that and even the headlines of non-investment publications will start asking what higher oil prices mean to the American economy and the future of Earth, which will scare all the people who didn’t see it coming. That will have a deleterious effect on stocks, of course, which will bring about the cheaper prices I’ve been expecting — and waiting to buy.

The basic oil story is not complicated. As the human population grows and poor people prosper, the demand for oil increases. It’s needed for energy; richer people require more energy. To meet this rising demand, we have an exiguous supply. Whenever strong demand meets inadequate supply, prices rise. In this case, we’re talking about the cost of energy, a good needed by every person and company in the economy. Thus profits across the board go down as the expense of energy goes up. Falling profits lead to falling stock prices. Only energy companies do well when the cost of energy goes up, a theme we’ve seen played out in the past couple of years.

Within the context of this larger situation, summer in America presents a microcosm of the same factors under greater intensity. The steadily rising demand for oil undergoes a short-term spurt of even greater demand as people take to the road for their annual vacations. They use their air conditioners to combat the heat, which reduces fuel economy just as the distances driven increase. It’s a well-followed seasonal phenomenon. In summer, gas prices go up.

That’s why I’ve been selling portfolio positions at a profit ahead of this scheduled series of events. We are on track.

Last week I sold half of my Ultra Semiconductor position at $19.66 for an 8.7% gain. It’s not great, but beats a loss. The remaining half continued rising through Friday and is now up 10%. This mini bull run will probably keep going next week, giving us even higher prices at which to exit the position entirely, perhaps with an aggregate gain above 10%. That would make me happy. I like this fund and will look to re-enter at lower prices in August or September. As I wrote last weekend, I think semiconductors are at a good stage right now. Once we get the stocks past this summer, there should be some strong upside which is followed with an extra 50% leverage in this fund. That is, if semis rise 10%, Ultra Semiconductor rises 15%. If semis fall 10%, Ultra Semiconductor falls 15%. That what puts the “ultra” in its name.

I’m toying with the idea of buying puts or shorting something ahead of the sell-off that I expect. I’m very careful about such moves, though, and am quite content to let the urge pass more often than not. Still, profiting on the downside has worked well here from time to time. Just last April we made 27% in less than two weeks with puts on XLB, the Materials Select Spider. It’s recorded on the Strategies page. That kind of thing is great when the odds of concluding well are high, but they’re usually not. So, I’ll keep watching as ever and let you know if a good moment falls in our lap.

In the meantime, you’ll catch me enjoying summer in Nikko, one of Japan’s most beautiful national parks that includes the magnificent Kegon Falls and historic shrines and temples. I’m lucky to live in Nikko’s same prefecture, Tochigi, just over an hour away from the park. I often visit the falls and hike through the highland moors and spend time looking across Lake Chuzenji. It’s a piece of Japan that is rarely thought about between the country’s latest car models and electronic devices. But it’s a piece of Japan that I love more than Tokyo’s famous hustle. If you’d like to see photos and learn more about Nikko, visit this nice guide in English.

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