Gearing Up

At the close today, I will buy 10% positions in DRYS, CLF, and MOS. Why? I think we're due for a nice little bear market rally. Yesterday's 400 point rally was disappointing to some, as NYSE volume was 31% below average. While it was weak, it tells me that the forced deleveraging is over, at least for now. Also, I spoke with a professor who confirmed that the credit crunch was most likely severely impeding international trade. If that is the case, I can still bet on world governments breaking up the credit liquidity logjam even if I believe that the commodity bubble is burst and done with. It's just time for a rally.

Let's compare the Baltic Dry Index with the Intertanko VLCC spot charter rates. Tanker rates are at a much healthier $60,000/day. This is right in line with the average going back to the beginning of 2002. I use 2002 because the BDI is now at the lowest it's been since 2002, and has plunged 90% this year. Now the tanker rates plunged 90% earlier this year (briefly) as speculators manipulating the market used boats for storage and then dumped them and the oil on the market. But it bounced back quickly. We now have confirmation that oil demand is slowing sharply - down 10% yoy in the US. Who would have thought that was possible? It hasn't happened since the oil rationing of the 70's.

Bottom line: I believe that the credit crunch has created some pent-up demand for commodities and there will be a bounce. I will play these loosely, although if I feel greedy, I will try to sell when the stocks get back to their 50 day moving averages.

And a quick word on Barack Obama. If he becomes president, he will raise taxes, which could cause money and capital to flee the country. The dollar will weaken, and Treasuries will plunge at some point in his presidency. Let's hope that doesn't happen. A strong dollar for a number of years would go a long way towards redistributing wealth from the rich to the working class. Asset prices would come down along with living expenses. The important thing is to keep the capital in the country which would encourage the rich to invest in domestic industry. If capital flees the country, then they'll start bubbles and booms somewhere else, which will suck more money out.