Something Ugly This Way Comes…

June 24, 2009 · Posted in Weekly Posts

Yesterday was lackluster. We again saw another day of the markets trying pitifully to mount some form of rally after the shellacking they took yesterday. Alas, no such luck. We saw pathetic attempts to move upward in the commodity and precious metal names but nothing with any real conviction. Our expectations of a rally that we stated some weeks ago have now been snuffed out. The market has no solid confirmation that anyone other than China is actually going to grow much this year. That calls into question the entire basis on which this rally has been based. Tomorrow, the Fed will release some form of statement on their position. They really can’t say much. We had expected some increase in their quantitative easing strategy a couple of weeks ago but interest rates declined on their own for a variety of reasons so extending that program is less likely. They can announce that they will keep rates low for an extended period but that will play on the growth fears the market is struggling with.

So far today we are seeing a rally across the board as the dollar slips, durable goods came in dramatically better than expected, crude stocks were substantially less than expected and Oracle and Monsanto handily beat earnings estimates.

The simplest expectation for later today is that the Fed won’t say anything that gives any signal to the market at all. That is, the market will be left stewing in its own juices so to speak. Maybe we bounce or maybe the Fed statement causes the market to fade.

Without going through copious charts let us just state the following:

1) The dollar chart looks ugly. There could be a spike up if the Fed says something particularly dollar positive or of other news intervenes but otherwise it looks set to resume its downward rend soon.

2) Gold and precious metals, despite today’s run up, look weak. Gold and silver, and the miners, look set for further losses. Does this rationalize with a declining dollar? Yes, if there is diminished expectations of growth and hence diminished expectations for inflation then gold and silver can trend down in tandem with a declining dollar for some time. No respite.

3) Commodity and commodity producer charts look bad as well. Despite bounces yesterday and today due to dollar weakness, the charts look set to regain their downward trends. We have successively broken trend lines (in some cases multiple trend lines), moving average lines, and support lines. At each juncture, the stocks or ETFs have paused and given some hope that they will consolidate and move higher. Instead, each pause has turned into essentially a bear flag and been followed by further declines. If the growth story dominates the dollar decline story, then commodities will resume their downward move.

Readers should take a look at our post The Most Important Question Facing Investors to understand the risks we are currently facing.

We wrote recently in “The Character of the Dollar Collapse” on the risks to investors in any asset of a dollar collapse.

Murdock Global Insight began discussing the dollar’s impending demise in January when the dollar was still generally strengthening How the US Dollar Will Lose Reserve Status. Now, in June, the idea that the dollar is destined for significantly lower levels at some point has entered the mainstream. The US fiscal position is increasingly being seen as untenable. Interest rates are surging for a variety of reasons but he massive debt issuance by the US is one primary cause. We have established the Murdock Strategic Portfolio for the purpose of growing our wealth in the face of a dollar collapse/surging China scenario The Strategic Portfolioand we have written about the risks that a free fall in the dollar could cause to those investments The Most Important Question Facing Investors.

To find out the details look at our strategic portfolio scorecard. The Strategic Portfolio is how we are investing in the global trend of dollar depreciation and Asian recovery and trading around that trend to ensure we stay profitable. Take advantage of the Free Two Week Trial and read it. We have also update the scorecard for today’s action.

The Strategic Portfolio

Portfolio Scorecard 06/22-23/2009

In addition, we strongly recommend reading The Most Important Question Facing Investors as recent action illustrates directly what we are faced with if the dollar decline turns into a free-fall.

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.

The following additional posts are highly relevant:

The Strategic Portfolio

The Most Important Question Facing Investors

How the US Dollar Will Lose Reserve Status

Chinese Gold British Debt

Brazil

China Part 4 - Playing the Dragon

China Part 3 Global Hard Assets

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

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

“The Coming Bond Debacle”

Fundamental Trends