Holy Cow! I spoke just yesterday of the stock market seeming to have completed a highly oversold bounce, as the SPX approached 800. The Fed and other central banks seem intent on a competitive race to devalue their currency the fastest, lol. Currency markets recently were surprised when the Swiss, of all countries, announced they would intervene in the currency markets to depress the value of the Swiss Franc. Everyone wants a weak currency because everyone's exports have fallen off a cliff. A weak currency makes your goods cheaper to foreign buyers.
The Fed stepped into the domestic fray today and announced hundreds of billions of dollars in purchases of "long term" US Treasuries and hundreds of billions of dollars of Mortgage Backed securities. Massive implications. The price of those Treasury bonds goes up, yield goes down, and the market for mortgage back securities is stabilized, prices for those securities also goes up, yields come down. Net effect is that interest rates for bonds and for MORTGAGES come down, allowing for refinancing and outright home purchases, thereby stabilizing the HOUSING MARKET.
Since this will probably help some of the crap on the banks balance sheets, combined with the expectation that mark-to-market accounting rules will be relaxed, combined with the expectation (or fear) that government-owned stock in financial companies like Citicorp (C) or AIG will be made "unavailable for borrowing or shorting" (mentioned by Todd Harrison on Minyanville), and the financials EXPLODED again.
So what's the trade as the US Federal Reserve literally creates another TRILLION DOLLARS out of thin air to buy US Treasurys and Mortgage Backed Securities? In essence, devaluing the US Dollar further by creating more and more of them. The standard trade is precious metals, gold in particular, and gold exploded today. Jim Rogers and Dennis Gartman like commodities in general, for the obvious reason that as money loses value stuff you buy with money will appreciate.
Oil and Agricultural products are the logical place to hedge against currency devaluation, as they were during the US Dollar devaluation/commodity inflation bubble that burst in the middle of 2008. However, the problem with oil in particular and the other commodities in general is that because we're in a world wide recession right now, demand for these commodities is relatively low, and supply relatively high.
Just yesterday US inventory reports showed a big increase in crude supplies and gasoline as well. Jim Rogers like Agriculture now most of all, because of limited supply, and the lack of an alternative to eating! People have been choosing not to drive recently.
Below are some charts highlighting the action described. I am long silver (SLV) and UDN (Proshares US Dollar Bearish). At the right time I will likely get into oil via DBO and/or an ETF like XLE or OIH. I may re-buy SSO (ultra-SP500), or FAS (triple long financials). I was recently in and out of them for some quick cash but could have held a little longer and made a lot more money. I like the Euro (FXE) as I have previously discussed, it double bottomed at 125, but I missed it, and it closed today near 135!
Still must remain disciplined, not chase, and note some of what we're seeing is a short squeeze, and we're overbought. But the trade in things that I like is now clearly to buy the dips and sell the rips, or, even hold on for a while.
This is just about as OVER BOUGHT as the stock market gets. And SPX 800 is formidable resistance. I don't think we'll get much of a pull back to buy lower from here, but, don't chase at this point!
The relatively tame play on a declining dollar. I am long UDN.
The double top in the US Dollar is in. The US Dollar is headed lower.
Long-term Treasurys (TLT) caught a bid with the FED announcement.
The stock market popped again with the Fed Announcement and the explosion in the financials.
Silver caught an after hours bid as the dollar took a dive. I am long SLV.
Rogers commodity ETN (RJI). Looks to have bottomed after a 2/3rds decline peak to trough.
Intermediate-term Treasuries (IEF) like 10 years exploded with the FED announcement. Time to refinance!
The EURO (FXE) exploded today. Darned I missed it!
Gold (GLD) popped after the FED announcement which is essentially a devaluation of the US Dollar.
A stronger commodity stock (copper). I still worry that copper is too housing-related, but it's doubled off its low. Copper is only about 20% off it's low. That's the attraction of commodity stocks. Higher BETA to the underlying commodity.
A financial ETF (XLF) that has gone up 50% in the past 2 weeks off the bottom, which will probably turn out to be THE BOTTOM!
The triple-long financial ETF that's more than tripled off the bottom!
What seems like the best performing oil ETF recently. Maybe they manage cantango better. I'm interested, although oil ETFs look attractive too. Just worried demand isn't there yet to justify higher prices.
An agricultural ETF (DBA). Looks to have bottomed and Jim Rogers is very bullish on this sector. I'm interested too.
Disclosure: Long SLV, UDN.
