All Hell Breaks Loose

Now for the strategies. Yea, if I am so smart how do translate that into dollars? Mind you that is not "gold" but "dollars", you know the stuff you can "spend".

OK, I shorted oil stocks using XLE back in April at around $58 per share. I was looking to short at $60 but missed my chance. Little did I know my chance would appear about 3 weeks later. Oh well, can't always predict the top. Anyway, I was looking to cover when the oil price dropped 10% from it's $75 peak. Oil did weaken but the stock market was stubborn and continued to drive the oil stock prices higher. Then the stock market rout hit late last week. I covered my short position as oil touched $68 on Friday 12 May. That was early. But oil was staying stubbornly in the $68-$70 range so I figured better cover as the bottom looked near. Then BAM, the market got hammered and as of today the oil stocks have gotten killed, exceeding my expectations for a fall.

So now we are down over 10% from the $60 XLE price, I am buying in again at $54. Lets see what happens.

Currency. I bought FRX at about $122.50 when I saw the dollar falling. FRX rises as the dollar falls against the EURO. I was looking to get out at $130 or so. However today the dollar unexpectedly rose as inflation showed a jump. My guess was inflation would hammer the US by August. Anyway, the fear the Fed will raise rates has caused some profit taking in the dollar. I don't care. The dollar is done and I see $1.35 to the Euro by year end. I am staying put.

Metals. I really missed this one. I went with DBC the Deutsche Bank commodity fund and shorted it at $25 and again at $27. The high was $27 and I hoped to cover around $25 or so before a return to rising commodity prices. My big screw up was DBC covers a larger range of commodities including grains. Grains rose as reports about inflation in grain prices later in the year caused traders to bid up prices ahead of the "real" rise later and this has caused DBC to be stubborn and not move much from its current price of $26.00. I am at a cross roads. Hoping for the market rout to take me to my cover price of $25 so I can ditch this fund and play the actual SLV and GLD (silver & gold) funds directly.

Silver. I hit this one on the head. Shorted SLV at $145 and covered at $133.60. Made a good profit and am sitting on the sidelines. If silver drops to $12.50 I may jump in and go long and look for a bounce back to $15.

Rates. I see 8% on the fed funds rate by Feb of next year. Why? Because the Fed has screwed up. They are clueless. I don't care what anyone says if Bernanke stops raising rates the US is going into an inflation era that will hit hard. This is my thought; Fed pauses, waits 2 meetings to see what is going on since the market got hit and by June has not recovered. Fed is worried about liquidity in the market more than inflation. July, market is recovering but the fall in oil and gas prices allow a moderate inflation number and Bernanke waits again.

Then by September meeting all hell breaks loose on inflation and the Fed goes up 1/2 point. The quick reaction caused the market to do the opposite of what usually happens and rallies. The dollar rallies for a short while. Then the economy tanks. The bite on inflation is large and after the summer the consumer is tapped out. We enter stagflation by the end of the year. However, the dollar continues it's decline anyway as the Government debt, trade deficit and tax cuts start to make the US look like the debtor nation with no way out of it's troubles. Interest rates continue to rachet up to stop inflation and support the dollar. The stock market languishes and by the end of the year we have a loosing market for the DOW and oil remains stubbornly high above $65 per barrel. Continued confiscation of oil company assets in Latin America and strife in the Middle East leave no option.

My solution, bought RRPIX, a mutual fund that rises as the interest rates rise. Already ahead 2.65%. I hate mutual funds. They are a rip off but as the unsophisticated an investor I am, this was one easy way to play out my theory.

Cheers...