The stock market woke up this morning in a bad mood, and the re-test of the lows I talked about last week is finally underway. I say finally because I find meaningless rallies as a waste of precious time. The rallies we witnessed last week were meaningless.
Today, the market came under pressure after Iran's leader, Ayatollah Khamenei, indicated that his country would not stop enriching uranium. In addition, he said that Iran would halt oil supplies if attacked. Here's what the Ayatollah said;
"if you make any wrong move regarding Iran, definitely the energy flow in this region will be seriously endangered."
I think that's pretty straight forward.
When reading news about the Middle East, or anything else for that matter, we need to keep in mind that there are always two sides to every story. Always. Being a natural born contrarian, I naturally have a tendency to want to look at the opposite side of every issue. This strategy has always served me well in the past.
When I think of our involvement in the Middle East, I can't help but think about the coincidence of the region having vasts amount of oil. The most powerful countries in the world are in a frenzy to secure their portion of the world's oil supply. This being said, why would the U.S. be any different?
Call it a critical eye, but the news we hear is important, but the news we don't hear is infinitely more important.
Today, after the news from Iran's supreme leader, oil prices rose sharply. Crude Oil closed up 42 cents at $72.75 after hitting $74 earlier in the day. News of higher oil prices and signs of price inflation sent the markets into a tailspin at the open.
The inflation news of the day came when the index measuring the service (ISM) economy fell in line with expectations, and this still signaled that growth was still strong in the service sector of the economy. This index measuring the U.S. service economy showed that companies were concerned about higher prices for energy and raw materials.
To add fuel to the fire, Fed Chairman Ben Bernanke told a banking conference that core inflation risk is unwelcome and the Fed must make sure that inflation is not sustained.
NOW FOR THE CONTRARIAN SIDE
It maybe be time to quietly accumulate gold and other commodity related assets.
In Bernankes speech to the American Bankers Association, he was clearly throwing a life raft to the beaten up dollar. Whether this will work or not is anybody's guess. My best guess is his comments were nothing more than a half court shot that hit the rim and bounced straight up. I don't think the ball will come down and land in the hoop, and this is why;
1) With our current account deficit and the inevitable unpegging of the Chinese Yuan, the dollar is fighting an uphill battle. More and more nation's are diversifying their assets away from the dollar into other currencies like the Euro.
Iran now has a competing oil exchange, and oil traded at this exchange are traded in Euros.
Could this be another reason why we are mad at Iran? Its just a thought.
2) Energy continues to be a mega problem, and will continue to be for at least the next five years.
3) Inflation is a huge problem; just look at the cost of building materials.
If Bernanke pauses, or stops raising rates, gold prices will resume their march higher.
Our current position in gold is in Goldcorp (GG). Tomorrow we will add a few more stocks to he IA portfolio, 1 gold, and 2 metals companies. Here they are;
streetTRACKS Gold Shares (GLD-Buy Limit $63, Stop Loss $57): A pure play on gold without owning the bullion.
BHP Billiton (BHP- Buy Limit $43, Stop Loss $ $37.50): The world's biggest diversified mining company.
Southern Peru Copper (PCU- Buy Limit $87, Stop Loss $79): One of the largest copper producers in the world.
Comments (1)
Hi John:
I just recently started following your blog. I do find your blog very helpful. I am a very small investor; i was looking at your model portfolio and you have quite a few stocks listed in there. If you had a couple of stock to pick, which stocks would you buy?
also, i know you have been mentioning CHK and BSX a lot. I was wondering besides major insider buying why you like CHK and BSX? thanks for the blog. Keep up the good work.
Regards,
Shawn
Posted by shawn | June 5, 2006 11:02 PM
Posted on June 5, 2006 23:02