Long Dollar, Short Oil, Hold Gold? 34 comments
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If you hold that the bear stock market rally is over, or almost over, then shorting oil and going long in the US dollar is a logical step.
Oil and the US dollar move in lock-step: weak dollar, strong oil price; strong dollar, weak oil price. Just look at what happened last year: a weakening dollar drove the oil price to a $147 peak last July; then in the financial crash of the autumn everything was sold for dollars, pushing up the greenback, and oil prices dropped to $32 by December. This year we have seen dollar weakness again and the oil price went up to a high of $73 last week. Is this about to unravel now, with renewed stock market weakness rallying the dollar and knocking the stuffing out of oil prices? That much could be fairly obvious after the big stock market sell off at the end of next week, and the fall in the oil price to $67. The big question is whether this market correction becomes a new directional trend. Readers will know what to expect next as an argument. We have just gone through a massive bear market rally in stocks, and yet economic fundamentals are arguably still worsening, if not actually going down as fast as earlier this year. Therefore, the stock market must correct to a less optimistic outlook. Or will it? The pattern of previous big bear market rallies is for a modest correction to be followed by a brief but spectacular blow-off before a real downturn. We do not appear to have seen that final blow-off yet. On the other hand, if market participants can come back down-to-earth for a moment and consider where this is all heading then they might get a very useful pointer to the outlook for the US dollar and oil. For if the markets are being set up for something resembling a second installment of last autumn’s drama, then that will mean a sharp fall in the oil price – perhaps below $25 – and a rally in the US dollar. That might also be bad for the gold price but with inflation fears growing it might be a beneficiary of the flight to safe haven assets, and perform even better than last autumn as a preserver of wealth. So go long dollar, short oil and hold gold?
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This article has 34 comments:
Surely is the global economy improves and risk appetites firms, you would short the dollar? I am considering:
1. It would lose its appeal as a safe haven.
2. The US economy is more flawed than many other regions, Australia, Asia, or example.
3. If economic activity improves then presumable oil and other commodities will appreciate, the dollar will suffer further downward pressure.
4. Central banks, including China, are cautiously exploring alternatives to the dollar as a reserve currency.
5. The US needs inflation to erode the real economic value of its debt - further depreciation pressure on the US.
Only if the global economy worsened and investors pursued the USD for its safe haven status would you see a fundamental case for USD appreciation?
Russia is doubling their money supply every 1.64 yrs;India every 3.57 yrs.China every 4.22 yrs,and the US every 4.23 yrs.....with many other countries in the 5 to 6 yr doubling of currencies in circulation.
One would normally think all of this is a perfect environment for gold and inflation,but so far it's been good for gold ,but not necessarily for inflation.........I'm of the belief that the dollar and gold will correct for a short while and then run up together,with the dollar hitting the .95 area and gold finally breaking the 1000 buck neckline and heading for 1300.....as for oil my thoughts are we are headed to 63 then 56 and lower.
www.schaeffersresearch...
I love that! It so characterizes the nature of trading this fake bull.
I HOPE Peter has nailed it...! I dunno how cuz I'm getting long in the tooth and cant remember zackly but somehow I've come up with exactly those positions. Loving DUG and hedging (for the moment) with a spread of those yeller bars, out of which EGO has been a quiet joy.
Is anyone still long financials?? After snubbing GM, how do we pump more billions into that black hole? especially in the face of this next wave of defaults. Talk about pennies in front of the steamroller....
I believe that China, whilst continually lying about their state of economic affairs, is still much stronger than people believe. If we look at their actions of late they have been net sellers of treasuries. I feel that on balance, any flight to safety that might occur from a return of the equity markets to more realistic levels will be muted by China's disinterest in collecting USDs observed not by what they say but what they are now doing in the market, reducing their massive dollar holdings. They are shopping for physical assets now, and it seems no shortage of relative bargains for them.
As for gold, do you mean physical gold or the paper stuff traded by JP Morgan and company on the Comex. This ridiculous sham of the so called free markets makes it all rather futile to contemplate. As long as there are no regulations in the gold derivatives market, as long as the gold banks can can write unlimited options and futures contracts backed by the air in the vaults, what use is it to analyze a market that is less a market than a David Copperfield scheme.
I believe we will see some strength in the US dollar against the emerging market currencies and non-commodity industrialized currencies. Only because the emerging market will prefer to keep their currencies undervalued. There will be a move into treasuries following weakness in the equity markets coming off these highs. But oil, sorry I don't see any big drops. The oil industry is in fact under capacitated to meet world demand which I believe has no limit. Having traveled the world extensively, this is just a gut feeling. Should speculators be reigned in, perhaps it could ease somewhat. But this is ever going to happen.
Afterall we have been through with shadow banking system bringing the world economy to its knees, and all the public anger and calls for change, have we seen any. Nothing, business as usual. In fact we have many of the worst culprits in the US turning themselves into bank holding companies and pulling up to the fed's back door for unlimited cashola. Let the speculating begin!
On Jul 05 08:03 AM DONE_SONZ wrote:
> I wouldn't have much faith in the dollar either way.Debt issues will
> just get worse if the market doesn't improve.Oil can go either way
> near term.Gold's fundamentals are still intact.
On Jul 05 11:43 AM Mad Hedge Fund Trader wrote:
> You nailed it. The stage is now set for the dollar. With the US 20
> months into a recession, it’s just a matter of time before the Fed
> pull us back from zero interest rates. With the ECB late to the funeral,
> European Central Bank president, Jean-Claude Trichet, last week reaffirmed
> his commitment to keep their benchmark rate at 1% to restore the
> economy. There’s your trade. The next move in the euro/dollar spread
> will be in favor of the greenback, as the US will be the first out
> of recession. On top of that, you can pile a fading US stock market
> and a back off in commodity prices, which are also dollar positive.
> Thus, you can expect the euro to trade down to the low $1.30s. Mind
> you, this is still a counter trend trade, which I generally try to
> avoid. I still think it will cost two Euros to buy a buck sometime
> in the foreseeable future. For those hardy few willing to scoop up
> some pennies in front of a steam roller, look at the 200% short euro
> ETF (seekingalpha.com/symbo...), which has backed off 34%
> from $63 to $42 since November.
In short, the game is in the hands of the central banks who have to get the toxic stuff brought under control. All of this however will be at a price to all of us and it ain't going to be pretty.
On Jul 05 02:49 PM knight wrote:
> Peter you nailed it and i think this the way it will play out in
> the next 6 months. One could also short Cdn/Aussie dollar as well.
> I also think a strong correction should bring Gold down significantly
> which may be the last time to buy it cheap. Also look for Gold stocks
> which will be extremely oversold.
On Jul 05 02:49 PM knight wrote:
> Peter you nailed it and i think this the way it will play out in
> the next 6 months. One could also short Cdn/Aussie dollar as well.
> I also think a strong correction should bring Gold down significantly
> which may be the last time to buy it cheap. Also look for Gold stocks
> which will be extremely oversold.
long gold
hold oil
On Jul 05 10:28 PM john the babptist wrote:
> short the dollar
> long gold
> hold oil
arabianmoney.net/2009/.../
Likely, yes, inevitable, impossible. There could be some rogue bulls out there anyways... And I am long cattle too, very long.
On Jul 06 01:42 AM Peter Cooper wrote:
> Coming at this from another angle, I would contend that there is
> no economic recovery and that we have quite a long period before
> such a recovery starts. In this time a further stock market sell
> down is not only likely but inevitable. To bring this point home
> I just don't like what I hear about US consumers saving and not spending,
> and US states cutting spending and facing big deficits. If Arnold
> can not get it right in California this does look a major problem,
> see:
> arabianmoney.net/2009/.../
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On Jul 05 01:15 PM KIT wrote:
> Gold does not have fundamentals ( no future earnings no dividends
> no growth ) It only has disire to own or disire to sell
Gold is headed lower slowly. So, if one is long gold, one is going to lose money. However, many traders may go short oil/silver/commodities and pair it up with a gold long. That is alright.
So, for the next few weeks, short risk, long USD.
But people still have to eat. And many a hungry mouth a'watering. Let's have a look at the Cattle market and forget this stupid yellow dung metal. Who cares.
Are you kidding me?
Oil is going up. Dollar is going down - even if other currencies go down as well, the dollar will purchase less and less as the years go by.
On Jul 06 07:38 AM ScottEX wrote:
> People have to eat. Everybody here has to forget about gold for a
> minute or two. The IMF is about to dump 400 metric tonnes onto the
> market and the Indian's aren't buying. The paper gold peddlers are
> going to jack up the printers and buy greenbucks, so net net. Dollar
> goes nowhere, gold goes down a bit.
>
> But people still have to eat. And many a hungry mouth a'watering.
> Let's have a look at the Cattle market and forget this stupid yellow
> dung metal. Who cares.
On Jul 06 02:01 AM ScottEX wrote:
> I would contend that economic recovery is inevitable; it's only a
> matter of time before the consumer can bear no more and resist no
> further the urge to splurge at walmart, believe it.
>
> Likely, yes, inevitable, impossible. There could be some rogue
> bulls out there anyways... And I am long cattle too, very long.
>
The charts and the fundamentals tell me we're not out of the woods yet and another leg down in asset markets is in the making.
Your argument about causality, however, is tenuous. My best guess at a prime mover for asset markets at this point, is Uncle Sam.
I think the US government has manufactured a rally in assets markets via massive stimulus; both monetary and fiscal. Asset markets traded higher (and the dollar lower) on the expectation that these programs would have an effect. Recent disappointing employment prints call into question both the efficacy of the last fiscal package AND the prospect for a new one. Plus, the Fed is pretty much out of bullets (although, the helicopters are on standby).
If the economy is dependent on Uncle Sam and he's either ill equipped or on the sideline, well, the markets will push lower. i.e. players will exchange assets for cash.
But that is not what the Article and Conclusion state. This Is Not a Trade but a Position to hold without an Exit Strategy.
Like Freya said: "You go long. I'll stay on the Planet."
On Jul 06 09:17 AM Living4Dividends wrote:
> Long Dollar, Short Oil, Hold Gold?
>
> Are you kidding me?
>
> Oil is going up. Dollar is going down - even if other currencies
> go down as well, the dollar will purchase less and less as the years
> go by.
On Jul 06 01:17 PM optionsgirl wrote:
> economic recovery is inevitable? Tell that to the Japanese.
On Jul 06 09:16 AM Walter Soonenberg wrote:
> Dollar is cooked...finished. Step back a bit and get a better perspective.
> Yes, short term strength very likely but 18 months out the Grim inflationary
> Reaper will call and the dollar will further collapse. Gold in hand,
> foreign currency (Asian preferred) only hedge. The US Debt load
> is simply too large. Somehow, most "wise" investors blissfully ignore
> this fact. Long Aussie Dollar, Remimbi, Norwegian Krone.
On Jul 06 12:13 PM Boxed Merlot wrote:
> I understand your sentiment and I prefer a medium rare rib eye to
> a hunk of metal or printing press product when I’m weak with hunger
> too. However, once the stomach’s full, I gotta think about how to
> pay for it, or the next meal for that matter. There comes a time
> when others will stop giving me something to eat just because I’m
> hungry. It’s not unreasonable to think they may expect me to contribute
> to my own existence. Unfortunately, the people who care about the
> yellow dung metal and greenbucks are the same ones that own the cattle.
>
On Jul 06 12:13 PM Boxed Merlot wrote:
> I understand your sentiment and I prefer a medium rare rib eye to
> a hunk of metal or printing press product when I’m weak with hunger
> too. However, once the stomach’s full, I gotta think about how to
> pay for it, or the next meal for that matter. There comes a time
> when others will stop giving me something to eat just because I’m
> hungry. It’s not unreasonable to think they may expect me to contribute
> to my own existence. Unfortunately, the people who care about the
> yellow dung metal and greenbucks are the same ones that own the cattle.
>
I bought an oil etf last month thinking summer is upon us....always a time for oil companies to bring out their ginormous screwing organs.Yikes.....should I form a company that informs everyone when I invest and advise ALL to write PUTS or short whatever I may be investing in. What the F***??? I bought 200 shares of GLD 2 years ago....when it crashed to $71. last year.....I just decided "Run Frodo....RUN". I am can't help but wonder if there is any intelligent way through the maze. FUQI is doing nicely....I made a pretty good increase on undervalued stocks from April through June. But now all m lovely increases are dwindling down the oil anus. I think eventually oil has to increase even if it is 2 years from now. Any soothing "hang in there" gal, what goes up must come down.....No...I mean what goes down must come up will be most appreciated.
Historically Gold has moved inversely to the USD. It is doing so now. I guess, its not so very different after all.