Freakishly Strong!

July 20, 2009 · Posted in Weekly Posts · Comment

Global markets continued to rally Monday and are at it again in Asia as we write this. Really, markets do need to consolidate soon, its a healthy thing to do. That said, we are becoming more convinced that we are indeed in the midst of a global liquidity driven rally. This may go on for months or for only a few weeks. What we know is we want to participate but after this many days of rise we will hold our powder and wait for some nod to consolidation before entering in any strategic way. In the meantime we are playing small cap breakout stock poker, making money in short term trades and waiting for the moment for meaningful buys.

Yesterday we listed 5 things we were looking to see in the markets. We are seeing two of those. Nothing good is coming out of Washington yet the markets are shrugging off the bad news - that is bullish at least near term. Secondly, the US dollar has continued to decline. Now, interestingly, the USD chart shows that the price has now breached the lower Bollinger band. That is a good indication that we will see the dollar rise in the near term before moving lower again. We feel it is likely this will coincide with a short consolidation period in global equities as well as a consolidation period in commodities. The key will be if any rally stays below the dotted center line (more or less). That is the standard behavior for a declining market.

USD 07/20/2009

So if the USD pauses here, has a small counter trend rally and then resumes its fall so what? Ahh,…let’s look at gold now.

Gold 07/20/2009

So the strategy with gold is to wait for a pull back below 950 and then see if gold can hold above the lower trend line. If it does and then starts to move higher we would begin accumulating positions. Final positioning though should wait until gold moves above the upper trend line and closes there. If this scenario unfolds then this should be the run that takes gold solidly above $1000.

What ties rising global stock markets with a declining US dollar and gold and other commodities rising? The answer is risk appetite. As long as investors are willing to risk their money in world markets and as long as growth begins rising again then the need for the liquidity that the US dollar provides diminishes and hence the dollar declines. As the dollar declines those assets denominated in dollars rise - namely precious metals an commodities. Any hint of inflation accelerates the rise of the precious metals.

We will be watching and commenting on this scenario over the ext few days and weeks to see if this is in fact what unfolds.

For those who are following the looming dollar crisis we urge you to read our free post Watch Out For Sterling where we raise the case that a precipitous fall in Sterling could serve to elevate the dollar near term and trash trading positions betting on an imminent dollar collapse.

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 07/20/2009

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

On the Edge of the Empire, Dollar Influence is Declining

The Dollar and Gold Near Term

How the US Dollar Will Lose Reserve Status

Chinese Gold British Debt

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

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

“The Coming Bond Debacle”

Fundamental Trends