May 4, 2010

There’s a lot going on, most of it favorable to the positions I have been advocating. Maybe I am not totally washed up after all…Anyway, here are some brief looks at a few things that are happening.

 The U.S. Dollar

I think you can finally take all that malarkey about the Dollar being trash, and no longer the world’s #1 reserve currency…and throw it out the window. When the chips are down, as we saw during the financial crisis in 2008, and as we are seeing again right now, everybody wants the safety of the US Dollar…

For some time now, you have certainly seen and heard seemingly EVERY expert in the world talking about the Dollar going to hell…and ESPECIALLY during the last year with all the debt the US was issuing…One supposed major candidate to replace the Dollar was the Eurocurrency, but now that Europe has been turned on its head, and with there even being fears of the European Union falling apart, I would imagine there are many billions (trillions?) of dollars that now want OUT of that Long Euro-Short Dollar bet…

In my mind, the Dollar is cheap. In spite of the fact it has been rallying (again) since December, it is still relatively dead on its lows and I think the upside could still be enormous. Don’t kid yourself. The USA is still the #1 economic engine and destination for capital on the planet, and there is no telling how much money there is that will want to be invested (and safe) here as the world emerges from all the turmoil of the past few years…

The bottom line is, I think there is no telling what the next big upside stop in the Dollar may be…For starters, I think you’ve got to look about 17 points higher ($17,000 per futures contract), or somewhere around the 100 level.

Without going into detail, if I am right about the Dollar going up, traditional economic theory argues this will exert downward pressure on prices for everything we import (which is everything)…meaning, I think you can take that entire “inflation is coming” false logic and junk it…From another standpoint, this would probably mean that all those Commodity ETF’s that Wall Street has been touting as a “hedge against inflation” are most likely going in the tank.

My big point is, IF THE DOLLAR IS GOING UP (for what earthly reason can you imagine a “Strong Euro”, at least for the next year or two, at any rate?), I WOULD GUESS THERE ARE A NUMBER OF COMMODITIES THAT HAVE BEEN DRAWING BULLISH SUPPORT FROM BILLIONS OF DOLLARS IN PURELY SPECULATIVE, “INFLATION IS COMING!!!!”, CAPITAL THAT IS ABOUT TO HAVE THE RUG PULLED OUT FROM UNDER ALL OF IT…and maybe kind of immediately?

THEREFORE: I REMAIN BEARISH THE PRECIOUS METALS, THE PETROLEUM COMPLEX AND, YES, THE SOYBEAN COMPLEX…ON THE FLIP SIDE, I STILL SEE BONDS AS HAVING MONSTER BULLISH POTENTIAL.

I frequently get the comment, “If you are so bullish on Treasury Bonds, you must think the economy is going down”….Not true, I firmly believe the economy is definitely back on the upswing, and as a  result, much like it happened in the 1990’s, tax receipts will be rising and government borrowing will be diminishing (meaning less supply coming to market)…Put that together with the worldwide demographics of the baby boom (more fixed income buyers than stock buyers now), very low inflation (if any) and a bunch of other reasons I’ve outlined at length in previous newsletters, none of which have anything to do with the economy falling apart, and I tell you there is a VERY strong case for Bonds rallying easily (in my opinion) into the 130’s.

Here is the front contract in Bonds…

 Here is the contract we are currently positioned in…I am still very much a buyer…Nobody really believes this is happening...yet.

 Soybean Oil

I believe Soybean Oil has been held up by nothing more than pure speculative buying…At some point (possibly immediately) that buying is going to run out, or bearish factors (such as a stronger dollar, for one, or a 22% increase in worldwide soybean production) are going to overwhelming negate the “inflation is coming!” argument (you think there will be any inflation in Spain, Greece, or Portugal, and really the rest of Europe now when they are doing everything they can just to keep their economies from totally falling off a cliff?) and this market is truly going to crash straight, straight down, and won’t find a floor until somewhere in the low to mid 20’s…Yes, I have been looking for this forever, and I still may be looking…but here, as we approach the volatile summer season, I do expect the fireworks to begin…

I THINK THIS IS A MONSTER TRADE WITH INCREDIBLE LEVERAGE. LIKE I SAID, MAYBE I AM STILL WRONG BUT I PERSONALLY AM STAYING ON THIS WITH EVERYTHING I CAN.

I would note the last rally, begun in early February, did not make it back to the highs, then went tightly sideways, and has now quietly made new several month lows…The result is, I believe we are just one decent down day away from seeing in this begin a truly hard, basically non-stop move through 35 cents and then on into new contract lows. IT WOULD NOT SURPRISE ME IN THE LEAST TO SEE THIS IN THE 20’S BEFORE WE EVEN GET TO JULY.

 I’ve got more but I’ll save it…Enough for one day.

Give me a call…GET ON…We’re almost halfway into the year and it sure looks like a bunch of sideways-going-nowhere markets are ready to start moving.

Thanks,

Bill

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