Commodities and Chinks

Well its been two weeks since I last posted, but with a fresh bag of salad, I’m read to roll. It looks like the dollar is about to fall off a cliff as it trades to an all time low against the Euro. Oil, Silver, Gold, Wheat and related countries continue to move higher as global demand is spurred by the weakening dollar. If the SPY can get above 1400, it will be a major win for the bulls, but the real confirmation will come from China. If Chinese stocks fail to move higher, this rally will fail. Brazil has picked up strength, but global growth is dependent upon Chinese consumption. The two stories keeping the market moving is bank failure and commodity inflation, and it is prudent to remain market neutral. Interest rate cuts may continue to buoy the SPY’s nominal price, but traded in silver, the tale is much more gloomy. In 2000, 1 share of SPY (SP500) was equal to 3 shares of SLV (Silver). Today, that very same share of SPY can only buy .8 shares of SLV; the SP500 has lost 70% of its value relative to silver in the last 8 years, and there is no sign of the trend ending. On the other hand, Silver will fall when fear of a banking crisis grips traders imaginations, and thus a short position in banks (SKF) would be a prudent hedge against deflationary pressures and the fear of global recession. Careful w/ leveraged short, wait for the market to confirm weakness (trading above relavent moving averages on multiple time frames) before you pounce. Agriculture has been incredibly strong, and DBA has been my favorite trade along w/ SLV; I’m still trading this north as long as it pulls the moving averages up on all time frames. I have been disappointed by Malaysia (EWM), which has failed to outperform, but the strength in Brazil (EWZ) is fantastic. BRIC funds like EEB are stabilizing nicely, and are providing very nice low risk entry points. But until China (FXI) can retake the 50 day moving average, I don’t think this market has enough legs, even with a loose monetary policy.