Transcendental Market Truths:
The Market:
The pulling of bids by buyers yesterday is an indication that this rally from March 2009 was just a bear market rally with no underlying fundamental rationale behind it. Stocks are priced for perfection right now and any downturn immediately causes investors to sell. That kind of nervousness is not the stuff of which bull markets are built.
Currencies:
Clearly, the collapse in the Euro is unnerving markets. Since I've been buying EUO on dips for quite a while now, I've been enjoying the decline.
The inverse yen ETF YCS did suffer because of the unwinding of yen-carry trades (hedge funds which borrowed in yen were forced to buy back their short positions to cover margin calls in stocks), but I believe that Japan's currency is the weakest of all currencies fundamentally and should be held short for the long term right now. I treat it as a scale-in investment for the long term, same as the EUO for the Euro which is paying big dividends right now as the euro collapses. In fact, I believe that the European central bankers may decide to start defending the euro in coming months, so I can be looking at a countertrend rally later this year which would provide an opportunity to cash in some of my chips in the short euro and put those profits to work buying the short yen as that currency takes the brunt of the selling pressure later on.
Gold:
Gold finally showed some strength during the trading day on Thursday, but it may not be out of the doghouse just yet. A lot will depend upon how much of a retracement it has after the currencies start stabilizing. And, it could be subject to a big retracement as it has probably gotten ahead of itself once again. Normally, Gold is a speculative investment because it pays no dividend (and, in fact, it costs money to store it, so it can be treated as a stock paying a negative dividend). During times of duress, it becomes a safe haven, but only for a trade and will often give back a sizable chunk of its gains once the crisis is past. The US Dollar is the pre-eminent safe haven play right now. I expect Gold to continue a bit higher into August. After August, it may crash like the euro and stocks.
Old Reliable SOX:
SOX was my big Early Warning index which told me to watch out for trouble. And, trouble came in spades yesterday. |
