The Dow Jones Industrial Average rallied 221 points today on....hopes that...on better than expected...on news that the economy has...on news that oil prices have...on news that inflation is no longer...
Well, since the rally wasn't sparked by any of the news above, the rally must be due to General Motors filing for bankruptcy first thing this morning.
A market that refuses to go down, will eventually be met with short covering. This is part of what is going on. The other stuff you don't want to hear about. It's "24", Jack Bauer stuff that you'll never fully comprehend.
As the economies here in the U.S. around the world remain weak, higher oil prices, if sustained, will eventually drive a stake into the heart of any talks of an economic recovery. Since know one, other than the stock market is seeing improvement, higher oil and commodity prices will impede that improvement in short order.
Oh, and all this BULL about "green shoots" are only believed by people who are "green behind the ears". Do what I do when watching financial entertainment TV, keep the sound on "Mute".
I have been telling you for several months now that Obama and his so called "Green Movement" cannot set their alternative energy plans into motion unless oil prices go higher. Hybrid cars, Wind, Solar, and Natural Gas alternatives will not be in demand without higher oil prices. So, to get you jump on the "Green Movement" train, they will squeeze your wallet until you jump aboard.
And, no... the oil companies didn't do it.
If you want to bitch and blame someone, blame these guys- Click Here
So, with oil prices climbing we need to ask ourselves if this is a sucker rally that will eventually correct itself (do to less demand in a weak economy), or do prices stay firm and go higher?
Personally, I hope it's a suckers rally. If prices stay firm and go higher from here, we need to get out of the stock market as quickly as possible. Why? How well do you remember 1973-74?
If we are in a 1973-74 scenario, a weak economy coupled with high inflation, high oil prices, and higher interest rates is nothing more than a train wreck waiting to happen. If this is truly what is to be, we have not scene the lows for this stock market cycle.
Here are our Top 10 ETF's for the week of June 1st:
1) DBA: Powershares DB Agriculture Fund
2) EWZ: Brazil Index
3) DBE: PowerShares DB Energy
4) USO: U.S. Oil Fund
5) IYF: iShares Dow Jones US Financial Sector
6) DDM: Ultra Dow 30 Proshares ETF
7) PGJ: PS Golden Dragon China Fund
8) SSO: ProShares Ultra S&P500 Trust
9) CASH
10) CASH
Here are our Top 10 Fidelity Sector Funds for June 2009
1) FSPTX: Technology Portfolio
2) FSRBX: Banking
3) FSCGX: Industrial Equipment
4) FCYIX: Industrials
5) FSCPX: Consumer Discretionary
6) FSCSX: Computers & Software
7) FSCHX: Chemicals
8) FNARX: Natural Resources
9) FSENX: Energy
10) CASH
For the Week:
Nice rally, huh? Well, there is always something to worry about when it comes to the markets, and frankly most of the potential problems never pan out. There is only one item- other than a nuke strike- that gives me serious concern- Inflation, caused by a declining dollar that leads to higher Oil, Commodities, and Interest Rates.
Also, do you realize what higher interest rates will do to the prospects for a full recovery in the housing market? If rates rise dramatically due to the U.S. government destroying our currency to monetize our debt, then housing prices will fall even further.
On Friday, the major market indexes closed the month of May with a gain. Oddly,Commodities had their biggest monthly gains since 1974 as Oil prices hit a six-month high $66/bbl, and precious metals surged as well.
Treasury Yields
The 10-year Treasury closed at 3.465% on Friday as the U.S. government continues to auction off record amounts of debt. The Fed has been printing "funny money" to buy its own debt to drive yields and interest rates lower. Well, it worked for a while but the Fed’s so called quantitative easing program is only $300 billion commitment, and the size of the bond market is multiple trillions. It's only a matter of time before the RMS Titanic- the U.S. economy- is overtaken by a huge amount of debt that cannot be fully monetized.
The Fed has been holding interest rates down by printing more dollars to buy our own debt which has many countries questioning the longer term solvency of the U.S. financial system.
Recently, Russian President Medvedev has joined calls by China, Brazil, and other Nations, to prepare for the collapse of the US Dollar. As foreign nations continue to halt their purchases of U.S. debt, the result has been U.S. Treasury bonds plummeting, and Treasury yields jumping.
-Gold
-The U.S. Dollar
On Friday, we use the current rally to scale back on our exposure to the equity market. We will continue to reduce exposure as the markets reach our target of 950-1050 on the S&P 500.
The Fed in its April minutes basically gave us a major warning shot across the bow. They said that they don't believe a meaningful recovery is underway, and were skeptical of the sudden stabilization that many are calling for. In short, the Fed is still projecting a deeper recession and a sluggish recovery.
Is anybody listening?
Our current asset allocation is as follows;
85% Equities: (Normally 95%) Aggressive
72% Equities: (Normally 80%) Moderately Aggressive
56% Equities: (Normally 60%) Moderate
36% Equities: (Normally 40%) Moderately Conservative
18% Equities: (Normally 20%) Conservative
