Sunday, November 7, 2010

Itz Week End Review

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What a Halloween the markets received this week, a shellacking to President Obama with a Republican House win, QE2 $600B plan from Bernanke, and a very positive Nonfarm Payrolls report. Yes sir the market got its sweet treats this past week...but how long will the 'sugar high' last? BUY THE DIP! There are still hundreds of billions in cash waiting on the sideline for a dip to buy. The decision to buy has already been made but they don't want to buy into a new high every day. So, can this market continue to roll ahead without some sort of pullback or correction? The catalyst to do so was a tax sell off, based on the termination of the Bush Tax Cuts. However, many believe that they will be extended or some modified form in '11. You may see tax selling, but a quick sell then buy back of equities. There maybe allot of good news in both earnings and economic reports in coming months, so one has to ask will the $75 billion per month be necessary or could the Fed let off the gas pedal? The again the $600B could be perhaps a signal that things maybe getting worse in coming months and are not as rosy as they appear...Hmmm?
The economy created +151,000 jobs in October according to the government report. That was more than twice what economists expected.  As highlighted in last weeks Weekend Report... Currently a person can qualify for a total of up to 99 weeks of unemployment compensation when combining state and federal programs. Those extensions end on November 30th. Nearly one million people will stop receiving checks in December and another 3-4 million will lose benefits by April.

The outlook remains this, if the economy is improving, the US Dollar should see a near term rally...if the economy remains sluggish the dollar should continue its decline. PIMCO's Bill Gross believe the US Dollar has another 20% decline ahead. >>LINK

Commodities have been on fire for the last 2 months on the anticipation of QE2. Gold came within $1.30 of hitting $1,400, Copper set a new two-year high on Friday. Silver set a new 30-year high as well. Oil hit a new six-month high at $87.43. Energy stocks are rocking higher even though demand has not yet caught up with production. The high oil prices are going to provide a catalyst for further exploration and higher profits. Energy and miners should be two sectors that will benefit the most from the QE2 program. Itz Pix Portfolio has several energy & miner stocks, but has hedged of late via Proshares Ultra Short Crude Oil etf (SCO).
But one has to keep in the back of their mind, what if the economy does improve more than expected, how strong will the dollar get? If we really begin to see some significant improvements the short dollar long commodity trade could unwind very quickly. We are probably a couple months away from that risk but it does exist. If asked most traders would most likely prefer a stronger economy over an artificial boost provided by an aggressive Fed.  FOMC Statement Bottom line the Fed is forcing investors to take on more risk and has put a put under the market. The Fed convinces investors to buy equities. Should stocks go up over the next six to nine months and everyone makes a nice profit at no cost to the Fed. We can sell our stocks, pay our taxes and spend our profits. The economy accelerates as the cash flows through the system. 
So as the old adage goes...'Don't fight the Fed'..looks like for now don't consider selling but rather adding to positions, if we ever see any dip?!

Is now the time to buy in to commodities or is it too late, with George Gero, global futures vp of RBC Capital Markets; Philip Gotthelf, president & commodities analyst at Equidex; and CNBC's Sharon Epperson & Maria Bartiromo.

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