Tuesday, June 16, 2009

Market Rally at Key Juncture; Russians at it Again

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The market rally is getting tired in here. Whether or not it can have one last gasp at this point will probably be decided today. The technical picture on the S&P 500 will turn decidedly negative if there is any significant sell off today. Conversely, a significant rally can turn it positive. Close to unchanged and we have to wait until tomorrow. I haven't been waiting to sell however and started doing so toward the end of last week. Most of my positions in DXO, ERX, and HWD are gone. My major energy position in now in UNG, which I plan on continuing to accumulate on major drops (this may no longer be at prices under 14, which may be a thing of the past for the moment). For those not paying attention, I sold AA long ago. I did pick up some NG and GDX yesterday however.

Like the market, oil is having trouble rallying at this point. Light sweet crude closed at 70.62, but was back above 72 again this morning. The weekly storage report comes out tomorrow and this will determine whether oil can make a run to 77 or have to fall back well into the 60s first. I will be a buyer again if it reaches the lower 60s.

The trade-weighted dollar was falling again today, but has managed to stay above 80. It once again moved on comments coming out of Russia. Last week they were selling their U.S. dollar holdings , the dollar sold off sharply. This weekend, they weren't selling their U.S. dollar holdings, the dollar had a big rally. Today, they are doing both. At a Russian/Chinese summit, the Russian president stated, "We must strengthen the international financial system not only by making the dollar strong, but also by creating other reserve currencies". Creating other reserve currencies would of course weaken the dollar considerably. Russia also wants to diversify its currency reserves by buying Chinese yuan, Brazilian reals and Indian rupees. Now I wonder what currency it would be selling so it could buy them?

Gold and silver had sell offs because of the dollar rally yesterday. Since this rally was based on fantasy, I am not currently taking it too seriously. How long the dollar can stay above its 78.33 breakdown point is anybody's guess, but it will get there evntually. The central banks that are major dollar holders are all probably trying to dump their dollars as discretely as possible at the moment. Don't expect them to advertise this on a big neon sign, even though Russia essentially did this last week. The reserve currency status of the dollar will also definitely be coming to an end sometime in the next several years as well. Few things are more certain.

NEXT: Best to Step Aside and Watch the Market

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.

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