Quick Word about Commodities

Commodity stocks are weak. No shocker; I've written for 3 weeks now they are getting more extended by the day/week and due for a meaningful pullback. I was early in my comments since the stocks kept running. I've written for 2 weeks now that as the Fed signals it is done cutting we'll get a knee jerk dollar rally and the robots that are hedge fund traders will sell off commodities. That "rotation" is now happening. [Sector Rotation?]

It's now been 6 weeks since we had the last round of "commodities are dead" - we were long overdue for hand wringing. [Mar 22: Alert: Commodities are Dead] After that panic, in which the fund took a hit (as always), many stocks rallied on order of 40-50% in the following 6 weeks.

The medium and long term does not change. We are having major deflation in our #1 asset, housing. We have a Federal Reserve that does not care about inflation although they try to talk a good game (watch their actions, not their mouths). We have major structural deficits and candidates (all 3) who don't seem to realize this and all their plans are about giving away more of the store and creating even bigger deficits. We have a US populace that does not understand that you have to give something up if you want to address said deficit. This populace gleefully cheers as candidates promise one thing after another, without addressing where the money is coming from.

We give out rebate checks we cannot afford. We will (in my opinion and I stated this the minute the last "stimulus plan" was announced) have another stimulus plan before the election. We have trained the American people to ask for handouts. Handouts we cannot afford as a nation. The backdrop is not for a stronger dollar long term - sorry. It might rally for 2 days, 2 weeks, 2 months. But our structural issues are immense (Medicaid/Medicare will be a national disaster in about 10 years) and no one who is running save Ron Paul was addressing them because its political dynamite. Read this to see where we are headed [Mar 26: Annual Spring Warning on Entitlement Programs Falls on Deaf Ears] Instead of building solar farms or nuclear plants we are passing farm aid to the tune of $300B for corporate farmers, in times they don't need it. [Mar 27: Farm Lobby Beats Back Assault on Subsidies] Etc. I can write about 100 reasons why we just continue down our path of fiscal stupidity; and why I am going to agree with Jim Rogers that the US Peso will be permanently impaired... but nothing straight down (or up). In short we are going to topple over from our own weight... we know one thing in this country the past 2 decades - "kick the can down the road". Well the end of the road is within sight in 10-15 years. The whole thesis for a "stronger dollar" has nothing to do with the US improving - it has to do with Europe breaking down.... i.e. eventually their economy will weaken and they will need to cut rates. That is not a thesis on US "strength"; it is a thesis on "relative weakness". That's why any "strength" in the US dollar will be relatively short lived.

The same stocks everyone was so high on not even a week ago (and people questioning why I would sell), now people will scratch their head, wonder if the era is over, etc. Blah blah blah. That's why I was selling into that strength. My thesis is none of these stories change, only their stock price changes in the short run. So I'll be building stakes, in layers, as these stocks fall - I will be too early on some of my stakes, and I'll catch the bottom in others. Just like in my sales - I was too early on some of the sells, and caught the top in others. I have no idea where the stock prices will be in 2 days, 2 weeks, or 2 months, but I have a good idea where they will be in 12 months. So I'll be selling shares I probably will be buying in the coming week to the same people who wonder why the heck I would sell last week when euphoria was running rampant. One day the story will change, and I'll move on to a new set of stocks. But for now it's just white noise, daily movement up and down that people think signals either (a) a bull market for 52 straight weeks or (b) the end of an era. Nothing is ever so extreme.

If you keep catching the middle of moves, albeit missing the very tops or bottoms..... year after year....it generally provides very good returns. But you'll take short term hits all the time. I just sold off Mastercard as an example @ $267 - it could go to $300 for all I know. But I made my batch of money, now I have that value in cash, and I'll look to buy it (or something else) lower. Sell euphoria, buy consternation.