Tuesday, June 2, 2009

Geitner Assures Chinese on Dollar Safety

Treasury secretary Tim Geitner assured a Chinese audience that dollar investments are safe. No no, this wasn't the new Tonight Show but it could have been as his comments were met with loud laughter. Anyone holding US denominated investments has to be worried as the dollar has collapsed more than 12% since March. Yet government officials continue to tell us that we support a strong dollar policy. The laughter underscores the tremendous level of cynacism that many are starting to have towards the US and their policies. They simply are not believable.

The following chart shows the Commodity Research Bureau Index (CRB). While the Federal Reserve and Treasury are worried about deflation, the CRB chart shows a totally different picture. Since March, commodity prices have risen more than 18%. Keep in mind, oil prices, while rising, are not near levels we saw last year. Prices of everything, across the board, are soaring.

The New Bubble

Can we be seeing anything other than a bubble? Are we getting way ahead of ourselves here with the market? Is there there too much money out there looking for a home? President Obama told us that his administration is going to eliminate the "bubble" economy but again, all we see is boom and bust.

Again, I see prices rise at a dizzying pace and even though I have been on the right side of the market and have made profits in excess of 25% on oil and other investments, this isn't investing. I feel like I'm at Vegas. And you know how it is in Vegas, if you don't pick up your chips and walk away early, the house will take your money. I feel that we are in this kind of situation now.

With this in mind, I took profits on oil, gold, ag and my short bond position. I went long 10 year notes and am looking for a home for a ton of cash. But will the dollar keep going down forever? I expect some kind of bounce soon. My fear is that we are just seeing one-way markets. We don't see the pulses of a rhythmic market. We only see mass emotion piling in billions of dollars going one way and then when the plug is pulled, billions of dollars exit en masse. Higher prices beget even higher prices and lower prices beget lower prices.

Our philosophy here is to manage money by objective. If you need 10-12% a year to achieve your long-term goal, it is better to manage your portfolio using stocks and hedging instruments in such a manner that you can have a high degree of achieving your rate of return objective with minimal volatility. Slow and steady always wins the race. Those who want to constantly play this super-risky market hoping to get rich quick always find themselves busted. The house always will take your money.

Don't be afraid to take a profit. Know what your return parameters are, take your money and keep it safe. If you've got extra "house money" to play with, use that to "rock and roll." Use futures or options on futures to have fun. They are fast and tax-advantaged.

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