Confusion

Equities along with oil have resumed their upward surge. I believe now that the best explanation for what's happening in the stock and bond markets is a combination of bounceback from oversold sentiment and dollar devaluation.

VLCC crude carriers were currently going for $5,900 yesterday, according to Intertanko. That's lower than its been in years, and this tells me that demand is not driving the price of oil. So, what is then? It's not lower supply; OPEC hasn't cut production recently, and oil in storage is at multi-decade highs. That leaves the most likely explanation to be a fear of dollar devaluation, causing a flight out of Treasuries and into commodities and equities.

The consumer remains on life support. The savings rate jumped from 4.5% to 5.7% for the month of May. Consumer spending was down 4.6% (the Goldman Sach's measure of same store sales, ex Wal-Mart). Abercrombie and Fitch's (ANF) same-store sales were down 28%. Ouch! That's what happens to companies that don't slash prices.

Bonds are falling again. The ten-year is pushing back up towards 3.70%, and the 30-yr is back over 4.50% to 4.55%. And, of course, mortgage rates have jumped from 4.91% to 5.29%, according to Freddie Mac.

So, now that everyone knows that inflation is here, is it time to cut back on these positions? All the gurus have been out there explaining what's been happening. Now that this knowledge is out there, it's probably time to take some more stuff off the table. Maybe I'll cash in NG. I'd love to short oil here on the fundamentals of supply and demand, but the dollar devaluation story is very convincing to me here. Let's see what the charts show me. I'll look at DIG, DUG, and USO. DUG is 25% below the 50-day moving average. Looks low to me. DUG is 16% over the 50-day avg. DIG is still ineligible to short. Seems there's a lot of speculation that oil's going back down. USO shows a clear bullish chart. There could be a breakdown soon, but it looks like the longer trend is up.