Financials Lead the Charge Higher

Somebody is relieved about the "stress test" results; that, and the "less horrible" unemployment report may have catalyzed another 2% squirt up in the US equity markets. Financials were up another 7% as a group.

Sadly, those US Dollars in our pockets and bank accounts, which denominate our stocks and bonds, lost a couple percent today; some say that with the recent near-failure of a Treasury auction this week, and the rise in long-term interest rates, the Fed will be forced to start buying lots of Treasury Bonds (quantitative easing).

Quantitative easing is like a secondary stock offering: it's dilutive. What's diluted is the value of the US Dollar. The market expects the Fed to start backing up the truck to buy bonds; hence the sell-off in the dollar. Of course, a sell-off in the dollar means commodities denominated in dollars become more expensive.

I'm reasonably well positioned for this, but was busy today, and have not established my positions in the currency ETFs: FXA, FXC, and FXF.

As before:

Long: SLV, GLD, KOL, DJP, GSG, DBB, EEM, FXI

Soon to be Long: FXA, FXC, FXF

Looking for entry point: EWZ, EWA, EWC, OIH, EWH, EWT

Wondering about: XLF

Comments

[dcb:]

take a look into dbv.

May 08 05:42 PM

[BigJake:]

Why no USL or USO in there?

May 08 07:04 PM

[Dr. O:]

GSG = iShares Goldman Sacs Commodity Index, which is heavily weighted toward energy. See link here: en.wikipedia.org/wiki/....

The composition of the iPath® Dow Jones-AIG Commodity Index Total Return ETN is shown here: www.ipathetn.com/DJP-i....

GSG is heavily weighted toward oil in particular and energy in general. DJP is a much more balanced commodity index.

What I like to do is comparison chart on Yahoo Finance, and see how well ETFs compare or correlate to one another. The correlation of USO, GSG, and DJP is very high for the past 3 months.

When I compare USO, OIL, and DBO for the past 3 months, while crude was rising, the correlation was almost identical. However, when I did that same comparison about 3 months ago, USO significantly underperformed.

When I did hold only crude, I preferred DBO on the basis of that kind of performance testing via comparative charting.

May 09 07:49 AM

[Dr. O:]

DBV = PowerShares DB G10 Currency Harvest. The investment seeks to track the performance, before fees and expenses, of the Deutsche Bank G10 Currency Future Harvest Index - Excess Return.

The index is comprised of long futures positions on the three G10 currencies associated with the highest interest rates and short futures positions on the three currencies associated with the lowest interest rates.

A more complete description can be seen here: www.invescopowershares....

What I don't like about this ETF is: it's currently short the Canadian Dollar; it has significantly underperformed both the Loonie and the Aussie over the past month; and dividends are paid only once per year in December.

The currency ETFs, such as FXA, pay dividends monthly.

May 09 08:13 AM

[Momintn:]

So what hurts the dollar the most... The government buying back it's own debt or people all over the world buying ETFs that short the USD?

May 09 09:13 AM

[Sellputs:]

Dilution is going to play a much larger issue when these names stock prices are left behind by competitors who chose not to use dilutive financing.

May 09 09:07 PM