Saturday, March 28, 2009

What to do when DOW re-tests the Bottom?

The current rally will soon loose out on the steam. The rally was mainly procured due to the short covering on the financial stocks and soon this will wear off as earning will be announced by each stocks. Even though financials have started making profits, there are lots of issues yet to be taken care of:

Immediate issues related to financials are

1. Commercial Mortgage Market.
2. Credit Card Defaults.

Now looking at these issues I was wondering what I should buy when there is a re-test. My safest bet is OIL.

US has only one and final solution to all these problems. Just keep printing money. Surely, they will use electronic methods rather than an old-fashioned printing press. But the effect will be the same.

The catch is that money creation on the scale required will amount to debasing the currency. That means the value of the U.S. dollar will decline versus harder currencies. This means OIL will go higher.

From its low of $35, oil has risen over 50%. If we hadn't gone through last year's spike in oil prices, $50 would seem outrageously high to most people. Considering the world economy is poised to shrink this year, oil's recent rally shows how very tight supplies really are.

Of course the same is true for many other commodities. So when economic growth returns, the next commodity bull market will be awesome.

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