Hedge you long oil/energy position, buy gold, and stay short the financials
Don’t get me wrong folks, we are in a secular bull market in commodities. That being said, crude is bound to correct sooner or later and I see it dropping in the $120 range barring an attack on Iran or a major hurricane in the gulf. I think the market has gotten ahead of itself here. Often some of the biggest corrections happen in bull markets, so don’t let the drop in commodities get to you. The dollar isn’t magically going to strengthen anytime soon and continue to buy into weakness here folks.
Hedge your long position in energy stocks by picking up an oil refiner. The margins for these companies have been getting squashed with the dramatic rise in crude compared to gasoline. Valero (VLO) and Tesoro (TSO) are a couple of my picks. They’ve both been hammered and will rebound nicely over the next few months if we see a correction in the price of crude.
If Gold drops back below $900 an ounce, you better get in. Historically, an ounce of gold trades right around 10 times the price of crude. With crude droping to $120 and bears dominating the stock market, expect to see some money moving to the safety of gold. It is my belief that we’ll see $1200 gold by the end of this year. Maybe even higher depending on how much bad debt is still floating around the balance sheets of banks. The fed is in no position to raise (although that’s what they should be doing). Expect more downside to the dollar as the Fed desperately tries to save bankrupt banks. All of this makes me bullish on gold.
Which brings me to my next point. Stay short the financials people. Freddy Mac and Fannie Mae are the weakest, but they are bad across the board. They have a ton of deleveraging to go and a ton of bad debt to write off. Helicopter Ben has cut rates to 2% and they still can’t get out of trouble. The Fed is practically giving away money and they find themselves in more and more trouble. And don’t buy a home as real estate prices still have a long way to come down (unless you are in Texas, a tax/business friendly state that is attracting people like flies on road kill). It almost sucks that we are such a booming state. The influx of Californians will someday destroy this once great republic.
