Monday, December 8, 2008

Commodities Rally!!!!

Well everything except my natural gas. When I listened to the markets today, it seemed that they were telling me that if we see a rally in equities, we will see a rally in commodities. We are not in the place where rising oil prices hurt the equities markets.

Lets really examine where we are at this point in the cycle. This started as a banking crisis and LIBOR rates were soaring with banks seemingly not trusting each other. Credit contracted so fast--really really fast. That contraction slammed the economy and now we are seeing the effect that it has had on unemployment. At the same time we had the credit crisis, we had extremely high oil/gasoline prices that were serving as a tax on not only our economy, but foreign economies as well. The effect? MORE CONTRACTION. The markets were heading down during this time---seemingly scared by any bit of news. The mainstream media kept running shows about the CRISIS, asking if your money was safe. Some at retirement age were watching their 401k plans shrink so fast that they put off retirement plans. During all of this panic the government started not just injection, but FORCING money into the system. There were stimulus plans, bailouts, and many other types of things that all resulted in INCREASED LIQUIDITY. Now you might ask why I appear to be giving a lesson on recent history. The answer is to prove my point that we have been pumping money into this economy and it is going to cause inflation. Banks around the world have been adding liquidity so incredibly fast. So now LIBOR rates are down to very comfortable levels and we are seeing so many talk about how the financial stocks are going to lead us out of this mess.

SO WHAT DO I SEE AS THE PROBLEM? The speed at which these liquidity injections begin to cure the economy---coupled with the tax break given to consumers when everyone panicked and got sold their commodities. Everyone---and it was reasonable--seemed to think that companies such as Federal Express would benefit as oil prices came down so rapidly. So what happened? Did the economy slow so fast that it hit their revenue harder than declining fuel prices helped their bottom line? I think so. And I think the same could be true as we turn around.

All the technical traders seem as happy as fat pigs in the sunshine. They think we have great support and that we should just bolt up another 100 points on the S&P. I know that I can't fight the momentum---but I will tell you that I can't fundamentally see what all of the euphoria is about. Are the smart investors going to pour their money into equities in this environment--especially if we run another 100? Or are they going to choose to put their money in "real" assets such as gold, oil, and agricultural commodities? What percentage gain did we see in equities today? What was the percentage move in oil today? I am being cautious here and am just trying to point out that we will see inflation and I plan to invest accordingly. I am still holding my natural gas even though I have been hammered in the trade. I am going to watch gold here. If I had to bet, I would say that the Federal Express news in the after hours is not going to be well received tomorrow.

Make no mistake more people have gotten long in the last few days, but are they going to get scared if things turn sour? I will guarantee you that I will take some off the table if this thing starts to pull back.

Sometimes you have to sit back and be non-emotional. I would love to put on my rally cap and start putting money into this market. But that would be emotional. My rational side tells me that we are in completely uncharted territory with this credit crisis and the measures that have been taken to fix it. So my rational side tells me to play what I believe that I know. I believe that at some point as these measures take full steam---we will see INFLATION. SHOW ME A TIME IN HISTORY WHERE THIS MUCH LIQUIDITY HAS BEEN CREATED AND WE HAVEN'T SEEN INFLATION.



captain caveman said...

Are you scared of your own shadow? Buying commodities here is just stupid. Stocks are about to rally and you want commodities.