Grandich's Blog

Please Note – Unless it’s urgent, I won’t be posting until Thursday May 28th. I updated model portfolio.

U.S. Stock Market – Weakness in the final hour strongly suggests the tremendous bear market rally is petering out. Technically, you can’t rule out another try to the upside but unless breath and volume greatly expand, it would just set us up for an even bigger decline. Remember, I don’t believe we’re straight down this time around but rather a slow bleed for several months ahead.

While the “Don’t Worry, Be Happy” crowd has pulled out all stops in their quest to
manufacturer “green shoots”, what we’re likely to witness at best is a lessening of the descent in economic activity. The “happy” people would like you to believe we can go from crash to recovery without a recession. Maybe on CNBC that can play (after all, it’s the home of fantasies) out but in the real world we’ll need many months of flat growth before any sustained recovery can take place.

Foreign Stock Markets – As you know I sold off all exposure to equity markets worldwide. If you put a gun to my head (I hope this doesn’t give anybody thought), I would have exposure to China but even there the recent pop up economically seems to be flattening out.

Precious Metals – Gold and silver are breaking out. As frustrating as this sideways move has been, it has built a foundation that can get gold above $1,000 and stay there. That’s a key as the financial media (and even CNBC) will start chatting it up once it remains at four digits for awhile.

Base Metals – While we’ve seen the bottom, I don’t think base metals can run much higher due to my belief we’re not going to see the economic rebound many envisioned for the second half of 2009. This is no reason to sell but instead to overweight with precious metals versus base metals.

Oil – With my $60 target reached (very few $60 targets back in late December at $35 when I went long) and an overdue consolidation period anticipated, us long term oil bulls would be best serve by a $50 – $60 trading range for several weeks. Markets don’t often due what one wishes but here’s hoping this wish is granted.

Natural Gas – I mentioned I was starting to look at natural gas a few weeks ago when it was below $3.50 but I didn’t pull the trigger. It looked like I missed the bottom until the last few days. The fundamentals are horrible. There’s gas everywhere. The recent rally was really on the heels of oil and stock market rally versus any significant fundamental change. Natural gas equities got way ahead of themselves. I do think we can still get under $3 so I’ll gamble and remain on sidelines for now.

U.S. Dollar – The only concern now is what to wear to the wake and funeral. By the time Main Street and the “happy” crowd come to grips with the fact the world already knows we’re at the cusp of a debt implosion that will drive the dollar much lower and U.S. interest rates much higher, the U.S. Dollar Index should be at new lows below 70. A technical bounce is due but any significant rally back towards the former uptrend line is strictly selling opportunities.

10yr. and 30yr. Treasuries – My no-brainer short bet for 2009 looks better and better. Imagine where yields would be if the Fed wasn’t throwing a trillion dollars plus at bonds? The irony of this Fed act is its going to make things even worse in the long run. The Fed and the U.S. Government can’t keep buying everything (actually they’ve already gone past the point of no return). When the bond market concludes that, well… lets’ not ruin any bull’s weekend.

Geopolitical – It gives me no joy to have such a negative outlook on the geopolitical front. Unfortunately, I do believe geopolitics is going to become front and center for the financial markets in 2009. Some may disagree on the belief a new era has begun thanks to the Obama administration. Nothing could be further from the truth in my opinion.

While a national vote in Iran soon could have an impact on my assessment, I’m not optimistic that a significant political change is coming in Iran. If I’m right and the current regime remains in control, I believe it can harden them as impossible as that seems now. On the other side of the coin, Israel actually came away with recent meetings with the U.S. better than most thought was possible. By President Obama saying publicly he gives Iran to the end of the year to get seriously talking about stopping their nuclear bomb development, this gave Israel a line in the sand where they can say Iran can’t be stopped diplomatically and can attack Iran. Just a few weeks ago, it looked like any attack would find Israel with no support from even the U.S. This may have pushed Israel’s attack back a few months but I think they’re delighted to base on what has taken place.

Meanwhile, Hamas continues to grow and this is very troublesome not only for Israel, but the whole Middle East.

Afghanistan could become Obama’s Vietnam and Pakistan is an accident waiting to happen. If and when one of these geopolitical concerns moves front and center, the combination of this and weak economics should be too much for the “happy” crowd to overcome.

Please know that I sold some NDM. I’m buying a house in a couple of weeks. I still have over half my original position. It was one of the best weeks for NDM in well over a year. I think some of it was due for a rally in mining stocks in general. I’m hoping some of it was because a player or players interested in positioning themselves for a takeover. A man can dream.