Assessment

Here are some key pieces of information that I have uncovered today, as part of my research.

1. China's imports of oil for July were down 7%. Their stock market is now down 60%.

2. The recent plunge in the Euro vs. the dollar was precipitated by the ECB buying 10 billion US dollars (and selling $10 billion worth of Euros), as well as weakness in commodities. The real reason is that the dollar has been undervalued relative to the Euro, the Pound, and commodity currencies such as the Aussie and the Loonie.

So, the question I must answer is, "What direction do I want to be headed in?"

The dollar will continue to come back.

The commodity bubble has popped. Speculators dont's run into headwinds (such as China's plunging demand for oil) for very long.

However, I need a decent bounce in commodities before I pick out some shorts. In the meantime, I will hold TSO. I am holding PWE as natural gas still is undervalued relative to oil. However, North American production is up about 8% this year, so I may sell if PWE goes back over $30.

Deflation won't help the banks, as collateral for their rotten loans will continue to be devalued. When consumers see falling prices, they will be more inclined to save. I will stick with my bank, homebuilder, and retail shorts.

I will stick with my international shorts on BCS and the Shanghai market.

I will hold onto my ALD and MCGC positions, but I will be more cautious about investing in income plays after taking a 40% hit on MCGC. For example, I will hold off on my idea to buy XGM or HGM.

That leaves me with two positions that I am conflicted about: gold stocks, and Treasury shorts. Will gold fall with oil? I need to think about this one more. My first reaction is to say, "Yes," because the commodity bubble has been a multi-year phenomenon, and gold has risen along with it. I will think about paring back my exposure to gold.

As far as Treasuries goes, I can't make up my mind. So, let's make a bullish list and a bearish list and see which one, if any, is convincing.

Bullish for Treasuries:

deflation
falling commodities
weak stock market
bank failures
dollar strength against other currencies
Fed rate going lower, not higher
higher unemployment

Bearish for Treasuries:

huge amounts of borrowing from government
big spenders running for President

Well, not much of a contest any more. Time to look for an opportunity to sell off TBT and buy some 30-yr. Treasuries. Plus, by being on the long end, I'll pick up 4.6% in interest.