Thursday, January 24, 2008

Market Update: Two out of Three....for now....

Gold? A good pick, up $24 at the moment and above $900/oz.
Weak Dollar? A good bet, down 0.8% today after the huge rate cut. See:

Energy? A terrible bet (?). The energy stocks have been slaughtered in the last few weeks.

So, 2 out of 3....but time will tell.

For gold, I'm quite confident we'll see higher highs and lower lows as the cutting of US interest rates while inflation is strong should prove to boast the precious metal.

For the dollar, I still think it goes lower. The ECB, with memories of German's hauling wheelbarrow's of cash around Berlin, is still respectful of inflation and is thumbing their nose at the US "policy" maker's pressure for them to lower interest rates. So, the Euro should get stronger, the US dollar weaker, and the wheelbarrows should be sent across the Atlantic to us. Did anyone see my letter to the editor in Tuesday's Wall Street Journal?

For energy, the third leg of this strategy, now is the time to BUY! Look at Conoco Philips - great earnings yesterday, a PE under 10, A rated, and this stock is in the low 70's down from a 52 week high around $90? This stock should be at $100 and expected to earn $10/share in 2008. S&P has a $104 target. Oil services have likewise just been hammered. They are a screaming BUY! The sell-off in energy and energy services in the last few weeks reminds me of last year when oil went from what, $75 down to $50 (if memory serves) and all the talking heads on CNBC said oil was going back to $30 ("where it should be") and scared alot of investor's out of energy investments. Of course, during the rest of the year, oil went to near $100/barrel and energy stocks and funds averaged about 30% gains versus the S&P dismal 4% returns. The same scare tactics are happening now (although note that oil is remaining above $85 even in the face of the market selloff and expectations of a recession). So, HOLD your existing energy investments and BUY more. You will be rewarded.

As for the dollar, I keep wondering what will replace it as the world's reserve currency. Will it be the Euro? Interesting question. While reading an article in the WSJ yesterday about an agreement between Russia and Bulgaria to build another nat gas pipeline, I realized that Europe is about as energy dependent as the US and then the thought came to me: when will a resource rich nation with huge energy reserves take on the role of world reserve currency? Remember, one reason the US took over this role from the UK was the discovery of huge energy reserves in Texas, Oklahoma, California, and the Gulf of Mexico. I hate to say this, but we could well see Russia currency become the world's strongest as they are now the largest oil exporter and they have huge reserves of nat gas which they have already shown they will use to hold Europe hostage. Europeans are already complaining this year of nat gas energy prices being some 15% over last year. Will Russia turn out to be the cold war winner in the long run?

Regardless, I am 2 outta 3 so far....but I bet in a few months, I'll be 3-3 and batting a thousand.

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