Weekly Market Review - Pre-Market 03/02/2009

March 2, 2009 · Posted in Weekly Posts

A brief re-cap of last week…Gold continued to stabilize Friday and is moving higher i Asia and Europe Monday before Wall Street opens. Bonds went down Friday on supply and the weakness in the revised US 4Q GDP numbers but look set to re-gain some of that today on global stock market weakness. We continue to hold our gold and short bond positions unchanged.

It looks like the big action today and possibly for the week will be in equities. Over the weekend the unrelenting bad news just kept coming. European leaders failed to agree to pursue a plan to rescue their automakers or their eastern neighbors. Consequently, European economies look set for some potentially catastrophic problems especially in the east and in the heavily eastern exposed banks in the west, particularly Austria. In the US AIG needs another $30 billion and apparently is getting it.

As a result, most Asian and European stock markets are down between 2.9 and 3.5 % prior to the Open on Wall Street. The S&P futures are down about 1.5%. The concern of course is that having now broken our November support levels there are really no technical supports of any significance till we get well into the 600’s. Anecdotal reports also point to a level of frustration on the part of many so the possibility of a cathartic or catastrophic fall in US equities this week cannot be ruled out.

The European situation is definitely driving the dollar higher today and looks set to for some time. We may be forced to concede on our short US dollar positions and wait for a better time. We will see how the action progresses though.

Fundamentally our views remain unchanged namely:

1) Us and most global equity markets are fundamentally impaired by the credit crisis and consequently do not represent good investment opportunities.

2) The massive volume of debt that is being floated in the US and other nations will drive long term interest rates substantially higher over the coming months. Shorting US Treasuries is a key trade.

3) Their is growing concern globally about the stability of paper currencies and indeed paper of all forms. This, and not fear of inflation, is driving precious metals prices upward and will continue to do so though the movements will be volatile. Gold mining stocks should rise strongly as well over time. Consequently we are long gold and gold mining stocks.

4) The incredible increase in the US money supply and deficit levels this nation is experiencing will ultimately do the dollar in and we will see a considerable dollar fall. This trade has not performed yet the way bonds and gold have. It appears that we will have a series of regional crises first (Europe and Asia particularly) before the fates reach around to the dollar. We are reviewing this trade at the moment.

As for the new US budget the biggest single issue is the assumptions of economic growth in 2010 and beyond. We feel they are entirely too optimistic and we see no stress tests or alternative scenarios listed in the budget that examine what happens if those assumptions are incorrect. We also do not see much in the way of program/initiative cancellations (though there are some). This combination means that he new budget is at risk for substantially increasing our debt levels even more if the economic assumptions are not realized. Further, we see no discussion of driving the deficit to ZERO and then paying down the debt. It is not too early to discuss this. It is in fact long over due. Fiscal conservatism means prudently managing the nations fiscal house. We certainly haven’t seen that in the last 8 years. We need to see it in the next four.

We have published two new Members Only posts covering the recent action in Gold and Bonds.

Gold Update 02/26/2009 and

Bond Update 02/26/2009

Coming Up:

We recently published two additional Members Only posts.

The first is “Gold In Depth” where we look at the health of gold’s bull run and examine in detail the risks gold investors need to be aware of

The second post is an “Update on China” as a lot has happened in the past two weeks.

We have recently published two additional Members Only Posts China: Part 1 dealing with how to time the entry point into the Chinese equity market and China: Part 2 dealing with the interaction between China and the US in the areas of bonds, the dollar and inflation.

We recommend the following posts as especially relevant at the moment:

China: Part 2 - Bonds, Dollars, and Inflation”.

“The Fed and The Bond Market - Will Intervention be Effective?”

“The Coming Bond Debacle”

Fundamental Trends

“How a Reserve Currency Collapses”.

“Gold - Reluctantly”

“Why is the Dollar Going Up (and When Will it Stop)”

To view previous Members Only posts simply follow the instructions under the “Become a Member” tab and select the “One Month Free Membership” when you get to the Products page. You must complete the checkout process in order for the Membership to complete. Registration is not sufficient. You are under no obligation to continue beyond the One Month Free Trial and your e-mail and address will not be shared with third parties.

We are entering a critical period of time in the bond and dollar markets staying plugged into what is happening and the likely ramifications is especially important now - stay informed with Murdock Global Insight.

We hold the following positions as of 03/02/2009.
Short Treasury Bonds through PST and TBT*

Long gold and silver bullion through CEF

Double Long Gold ETF DGP
Long gold mining stocks through TGLDX
Short US dollar through UDN**
Long Australian dollar through FXA**

*ProShares leveraged short ETF. Investors need to understand thoroughly the risks associated with these leveraged products in light of their personal investment needs and risk tolerance. They may not be suitable for all investors.

** Position is currently in loss but we are sticking with it as we believe the fundamentals are in our favor.

+ Reduced today due to weakness. Fundamentals remain intact.

++ Added 02/18/2009