Tuesday, March 11, 2008

Stocks Bounce

Today's decision by the Fed to allow certain types of debt, including mortgages, to be used as collateral in exchange for additional borrowing from the Fed helped stocks rally. The move is seen as stabilizing the mortgage markets. This may be an opportunity to get out of some of the financials on the bounce. It should be interesting to see how the markets trade the rest of the week.

As a side note, you can view CMBX Indices on the web.

Sunday, March 02, 2008

Are Commodities Recession Proof?

Gold, oil, most of the other precious metals, and the agricultural commodities continue to make new highs. Is this a bubble? I wish I knew the answer to that. I continue to remain bullish on commodities. There are two main scenarios for why commodities will trade higher regardless of how the U.S. economy proceeds.

Scenario #1
U.S. Economy enters a recession. The Fed continues to cut rates, further eroding the value of the US dollar. This means it takes fewer Euro's, Yen, and just about every other major currency to purchase more commodities that are denominated in dollars. This will lead to an increase in demand for commodities.

U.S. Economy has "bottomed," interest rates remain constant or move higher, and the U.S. GDP picks up. An increase in GDP will further increase demand for commodities. The dollar should strengthen, but demand will remain robust due to economic growth.

Stocks to Own
  • Natural Gas: Chesapeake Energy (CHK)
  • Contract Drilling: Diamond Offshore Drilling (DO)
  • Crude Oil: Petrobras (PBR)
  • Fertilizer: Mosaic (MOS) & Terra Industries (TRA)
  • Metals: Vale (RIO) & Rio Tinto Alcan (RTP)
  • Uranium: Cameco (CCJ)
  • Solar: Sunpower (SPWR) & MEMC (WFR)
Pure Commodity ETF's
  • Powershares DB Agriculture Fund ETF (DBA)
  • iShares Silver Trust (SLV)
  • streetTRACKS Gold (GLD)
  • US Oil Fund (USO)
  • US Natural Gas Fund (UNG)
Note: I have positions in CHK, MOS, TRA, & RIO