Thursday, December 11, 2008


I have been saying for a while that it is about the dollar and that rang true today. I think that we saw some profit taking today and I am not looking for another huge downward move. Negative comments from J.P. Morgan CEO Jamie Dimon accelerated things to the downside late in the day and the Bank of American job cuts announcement didn't seem to help things in the after hours. The futures are down significantly at the time of this writing, as are the overseas markets. It looks to have all of the makings of a doom day tomorrow---but I am playing for the longer term. I bought FCX today. I am already upside down in the trade. I bought it on my inflation thesis and plan (although plans do change) to hold it for a while. I am going to write an article on emotion this weekend---but my entry point was based on emotion--even though my fundamental research was leading me to purchase the stock.

I am convinced that the dollar is headed lower. Today was a prime example of what will happen as the dollar weakens---oil will head higher. This inflation story is may begin slowly, but the impact is going to be very dramatic. I am beginning to turn from a bear to a bull because of inflation. I think money is beginning to trickle through the system, and I don't want to be late on this trade. I still have UNG and think that trade is going to be a good one---even though I am down over 40% thus far. Today, as oil rose we did not see it pull Natural Gas up with it. Will that last forever? No! Think about it from a common sense perspective. We are reaching a point with natural gas where the producers are going to cut back on exploration. Supply will dwindle and demand will increase as we put more natural gas fired electric plants online. Boone Pickens slogan about natural gas is "Its Cleaner, Its Cheaper, and ITS OURS" All of those things are true and it just makes sense that we will use more of that commodity in the coming years. I believe we will see increasing demand about the time that we notice the supply declines and that will cause gas to spike. Also, at some point---rising oil prices will "pull" natural gas upward as well.

If you are watching the mainstream media you are seeing the headlines about the fight over the automaker bailout. Does anyone really believe that this deal is not going to get done? OF COURSE THE BAILOUT WILL GET DONE. MORE INFLATION. Jim Rogers talked about how Alan Greenspan created bubbles by not allowing the economy to go through its normal recessionary cycle by lowering interest rates. I am not a fan of Greenspan and I totally understand Mr. Rogers points on the subject. BUT ALL OF THESE BAILOUTS MAKE GREENSPAN'S ACTIONS LOOK TINY. I am still looking for gold $1500 in 2009. I think the flame of inflation was officially lit this week. Unless the dollar surprisingly rallies, I believe that oil could end the year at $55.

Just a couple of weeks ago, every talking head on television was talking about deflation. I got sick of hearing the word. I just don't think it is realistic to worry about deflation in this environment. If this were a normal cycle that might be on my radar screen. BUT THIS IS NOT NORMAL. Look at the money that has been pumped into the system already. Yes we have horrible jobs numbers, yes they are going to get worse, but we have patched and patched with these bailouts. I keep stressing that the liquidity is ALREADY IN THE SYSTEM.

During the time of this writing the futures have gone down much further--just checked and they seem do have dipped as the Senate failed to reach an agreement on the automaker bailout. They are not going to let these guys fail. No way no how. If the market falls on this news tomorrow---I will be buying more of my inflation picks. Oil and Gold are getting hammered with the futures and lawmakers are talking about Wall Street's reaction tomorrow. AND ACCORDING TO BLOOMBERG THE DOLLAR HIT A 13 YEAR LOW AGAINST THE YEN. WEAKER DOLLAR WEAKER DOLLAR.

The market may vote tomorrow just like it did during the banking crisis and it may send lawmakers back to the drawing board. They may just sell everything tomorrow. Oil, Gold, and Stocks. I hope oil and gold drop--I will be looking to be a buyer because the weak dollar is the main story here.



dacian said...


In the bigger picture, I think you're early. Way too early. While the dollar is due for a correction, the deflationary environment is still here. We just entered it! Unemployment above 8% is very deflationary actually. In 2008, those who were overlaveraged "covered" (and J. Rogers was one of them). 2009, "Main Street" will have to "cover" and pay down debt. While the $ is due for a correction in the short term, I won't bet for it falling in the mid-term.

"Look at the money that has been pumped into the system already."

You're way too early. Money is not in the system yet. It's parked in treasuries, at the FED and banks are sitting on money, refusing to lend (which is very rational actually giving the environment). "Main Street" will start to hoard cash and save it. Wait and see...

While down the road inflation will be back in big way, there is no the case yet. Look at 10-year notes, they are pointing towards deflation.