David Fry's Daily Market Outlook
For the past few weeks we've been suggesting that a correction should come, but what would be the cause and when? Wal-Mart Stores Inc.'s (WMT) poor same store sales figures were fingered as "a" culprit, but other retailers reported healthy sales. I'd pin the reason for today's sell-off on the rise in currencies [falling dollar], precious metals and commodities.
As readers of this column know we've been highlighting what we chose to call the "usual suspects": energy, bonds, the dollar and precious metals, homebuilder's and consumer sectors to name a few as the potential source of trouble. Many times corrections come from left field or unusual events, particularly when equity markets are overbought. What's interpreted as poor WMT sales data isn't one of them frankly. No, the dollar's condition stands out today. Why? Because precious metals markets soared, bonds were flat and no other sector was spared from selling.
Most retail investors would find CEF [Central Fund of Canada], despite dealing with the premium, a more convenient way to invest in precious metals since it holds a 50/50 position in gold and silver bullion.
PowerShares DB Commodity Index Tracker (DBC) has a percentage of assets in corn and wheat. Rapidly rising corn prices are crimping profitability and costs for ethanol. Nothing like government subsidies is there? The old joke is: "How does a farmer double his income? Put up another mailbox."
A severe drought in Australia pushes wheat prices higher as well.
Okay, enough of this currency, precious metals and commodity diversion; let's get back to some of the other usual suspects.
Other than currency, metals, bonds and cash was there anywhere to hide today? No.
We just don't have time to cover as much as we'd like to as we need to go to work. What's the big issue? Will Bernanke & Co. [including Treasury with Paulson] be able to stem the dollar's decline? Expect a lot of chatter this week in this regard. The "tell" that they'll be able to will be in the behavior of U.S. bonds in my opinion.
Have a pleasant evening for tomorrow is another day. Brilliant!
Disclaimer: Among other holdings, The ETF Digest maintains positions in: Euro Currency Trust ETF (FXE), CurrencyShares Australian Dollar ETF (FXA), CurrencyShares British Pound ETF (FXB), CurrencyShares Mexican Peso ETF (FXM), CurrencyShares Swiss Franc ETF (FXF), streetTRACKS Gold Trust ETF (GLD), iShares Silver Trust (SLV), Market Vectors Gold Miners ETF (GDX), Central Fund of Canada (CEF), S&P 500 Index (SPY), NASDAQ 100 Trust Shares ETF (QQQQ), iShares Lehman 7-10 Yr Treasury Bond ETF (IEF), iShares S&P Europe 350 Index (IEV), iShares MSCI Emerging Markets ETF (EEM), iShares S&P Latin America 40 Index (ILF), India Fund Inc. (IFN) and Templeton Russia & Eastern Europe Fund CEF (TRF).
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