Monday, December 1, 2008


What happened to all of the confidence that we were seeing last week? I wrote about the endless parade of bottom callers that the mainstream media had for us last week. I was not convinced that last weeks rally was the bottom. When you analyze what is going on in the global economy---you see that we could be in for more pain. I am working fast and furiously to figure out how to really make some serious money in this environment.

I believe that we are getting close to the bottom of the commodities decline. I acknowledge that I can't call the exact bottom, so I am going to slowly start buying the commodities that I see rebounding. I posted a portion of Jim Rogers Bloomberg interview in my post last night and will again say that I did not hear him say anything about any issue that he saw that would deter inflation in the long term. We are seeing the government pour money into the system at never before seen rates and unless I am totally wrong, we will see them throw some money at the automakers tomorrow. While Chairman Bernanke did acknowledge that he can still lower interest rates---he now is talking about buying treasuries. Hmmm--more money being injected into the economy. Did I mention that Australia cut by a full point? Their biggest move since 1991. INFLATION IS ON THE WAY.

I have been short the market through the SDS and it had a nice gain today. We ultimately believe that the massive liquidity injections are going to weaken the dollar. I will go back to the second conversation I had with Jim Rogers. I was short the SPY at the time and I asked him if things were so dire why my shorts were getting hammered. He made the point that during an inflationary period the indices might very well be moving up, but you would ultimately have less money because of the inflation and the destruction of the value of the dollar. Lets keep that point in mind as we analyze where we are right now. Now we are in a situation where the dollar has rallied. This is a huge negative for stocks over the short term as I see it because when the dollar had weakened---we were seeing growth come from exports. So now we have a double whammy---worldwide demand has slowed and the dollar has fallen and is making our goods more expensive in a declining demand environment. So over the very short term, I see extremely weak numbers for our corporations. I am holding my SDS and will do so based on the TECHNICALS. I am looking to position myself for the longer term move based on the FUNDAMENTALS. That is why I am looking toward the commodities.

So to begin our portfolio we will start with the following

200 shares UNG (we will use the opening price tomorrow)
200 shares TBT (open price tomorrow)
100 shares SDS (open price tomorrow not to exceed 104)
100 shares DBA

Please note that our portfolio is for entertainment purposes only and you should consult your investment adviser before making any trades.

At the time of this writing, the futures are in positive territory. I believe that the TBT which is a way to short the Treasuries---is a good investment as I believe that the next bubble being created is the Treasuries bubble. We may well see them go higher and that is why I am starting slow. What factors do I think could cause the treasuries to fall? First I think that when the markets are convinced that deflation is under control (I am not saying that I see deflation---I am simply saying that many market participants have been worried about deflation as of late) they will move out of the treasuries. Obviously I believe that it will be crystal clear that deflation is not the problem within the next 6 months to a year. If we take retest the lows and successfully bounce---we will see investors gain a little more confidence. Increasing confidence will translate into lower treasuries. I think we are headed to retest the lows.

I am keeping my eye on the dollar. As I said, for the time being a stronger dollar is bad for stocks (I know Larry Kudlow would argue that---but you know what I think about the mainstream media). We need that export component to help our economy grow. The interesting period will be (and many will argue against me) when the dollar begins to fall and the economy shows signs of stability. I think that is when I will be able to ramp up my strategy of commodities.

I am posting the PART ONE of Jim Rogers' Bloomberg Interview Below:


Doug said...

There was no confidence in the "rally" last week. The volume can show you that.
Look at the divergence in the price and the volume. Look at the previous up move in Oct and compare it with the volume. Do the same with the down move we had and also at the move last week. Going by technicals if we break 7400 we are headed alot lower. I am looking at 6600. Looking at buying puts on this mornings up move.