Sunday, January 18, 2009

Can You Still Trade Fundamentals???

I think Jim Rogers made a great point during the last interview when he talked about the fundamentals of commmodities. That said most of you know that I have been upside down in natural gas for quite some time. I do see the short-term "price declines". I use the term price declines as I refuse to term it deflation at this point. Tomorrow we start a new Presidential Administration and I will be curious to see how quickly President Obama gets this stimulus package to the table. I believe that it will happen quickly and I also think the markets will respond favorably.

Many will argue that the financials will lead us out of the bear market. I don't believe that it has to be that way this time. If it does we are in trouble because we have more pain to go with the banks. I personally think that the commodities stocks will lead during this cycle. The markets are so focused on the deflation possiblities right now that as we see any sign of recovery---the steel producers, the miners, and the energy stocks should bounce first. Deflation, because of multiplicity of reasons---most notably the lost decade in Japan, scares the heck out of the market. Jim Rogers argues that we are still seeing deleveraging and I personally thought that most of that process would have been done by now.

Since the end of summer 08 this market has proven more difficult than normal to predict. I have been trying to find factors that I can couple together and try to make major profits when we see some normalization. I do believe that the dollar may stay stronger than most people think UNTIL we begin to see some signs of recovery. A major shocker may be that just as many think we are out of the woods when we see the economy start to return---we will see the dollar get HAMMERED. Why do I link economic recovery and the fall of the dollar. Because there may be some merit to the fact that the dollar has been propped up because our economy has been "better than the rest" during this downturn. If the dollar is going to lose its place as the worlds reserve currency, we will have to see some strength in other parts of the world before people have the confidence to give up their dollars for another currency. Gold--widely accepted as a currency in its own right has the deflation scare hanging over its head right now. How many talking heads in the mainstream media have you heard say "The Gold Bugs have had all of their dreams come true this year and gold is still below $1000 an ounce"? I have heard plenty of them and this puts pressure on smaller investors to stay away.

I believe that Jim Rogers call for the dollar short to be a good trade later is accurate for the reasons I just described. That said I am already short the dollar and I intend to hold that position.

I am looking to stay long natural gas, short the dollar, long the best of breed steel producers (namely X), long the best of breed miners (namely FCX, and take what technology gives(I like CSCO at these levels). Those are the fundamentals that I believe we can play sucessfully over the next 6-18 months. I also like IBM here.



Kel Murdock said...

I think the dollar is more likely to start it's fall when the bond market tanks. There is some point where the rest of the world stabilizes to the point that they recognize our fiscal position as unstable and stop funding our bonds and selling off some of what they have. That could proceed any real economic recovery.

I agree that commodities will lead the way out but I think it will be some time before we see it.