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Got Any HOT Tips?

By Jon Nadler       Printer Friendly Version
Jul 11 2008 3:10PM

Good Afternoon,

Crude oil scaled new peaks on Friday, as perceptions that supplies would be impaired in the event of a regional war in the Middle East overwhelmingly dominated all markets today. Black gold vaulted above $147.25 during the day as program buying was triggered. A subsequent pullback brought oil prices back towards the $145 mark but, by then, the 'damage' was done: the Dow had slipped to under 11K on the day, the US dollar was skirting 72.00 on the index and 1.59 vis a vis the euro, and gold had touched a high of $968.20 during a hectic Friday session. Gold now finds itself at levels not seen since March, awakened from the summer doldrums, but also carrying an easy $150 war-jitters premium that looks much like oil's.

The US continued to downplay the likelihood of war with Iran, while reports of Israeli rehearsal flights inside Iraqi airspace continued to unnerve investors everywhere. Some news reports downplayed the shows of (missile) force by Iran as Saddam-style bravado plays and that oil prices are being driven more by future expectations of supply/demand issues than current tensions since they see very limited (if any) capabilities by Iran to respond to a surgical strike on its nuke projects.

That possible military event being one of the'outside, and out-sized' one we excepted in previous articles and interviews, any such development could be good (or, rather, bad) enough to get bullion not only above the $965 pivot (which it briefly did today), but quite likely, up to the four-digit value area. Such a price scenario has an escape clause as well, should oil turn a lot lower on some positive geopolitical development, or should profit-takers cash in after a good run, or if the currently unlikely odds of dollar intervention become a certainty.

New York spot prices continued with strong double-digit gains on Friday afternoon (at last check $962 was the quote, up $15.50), propelled by the runaway crude - swooning dollar - caving stocks troika. Participants were also weighing US consumer (or lack thereof, we should say) data which indicated a mood as sour as what was only seen 18 years ago.

Silver added 46 cents rising to $18.75 per ounce, while platinum gained $34 to $2025, and palladium climbed $3 to 450 per ounce. Background nervousness continued in the equities market as the US government could be considering a takeover of Fannie and Freddie, despite repeated declarations that the firms are more than adequately capitalized. Citi analysts have called the selling of the F&F shares 'overdone' and said that they ought to be bought now.

Indeed, the dilemma of what to buy these days has quite a few investors sidelined in cash waiting to see a bottom in one area, or a pullback in another, before they commit. Not that cash and cash-equivalents are a bad place to park at the moment. At least this is the proposition made by Holly Hooper-Fournier, editor of the Mutual Fund Strategist newsletter, who says that "the vast majority of the stock market is not worth owning right now, and said that investors should focus investments on gold and precious metals, domestic bonds and cash."

In a Marketwatch radio interview, Hooper-Fournier noted that just two of her service's 17 timing models -- gold and U.S. bonds -- are on buy signals, although she said that international bonds appear likely to trigger a buy and she likes the look of some health-care funds.

Hooper-Fournier told Chuck Jaffe, MarketWatch senior columnist, that even in worthwhile categories investors should be "cherry-picking" the best performers. Further, she said that investors who follow an asset-allocation strategy -- where they typically commit a portion of their money to a category like emerging markets or small-cap value -- might instead move that segment of their money to cash.

"People tend to get restless, but we would recommend you save [that portion of your asset allocation] in the relative safe haven of a money-market fund," Hooper-Fournier said. "Cash should be viewed as your friend right now."

Backing up the cherry-picking idea, Hooper-Fournier put a hold on Evergreen Precious Metals and Oppenheimer Gold & Special Minerals saying that while both generated buy signals based on the Mutual Fund Strategist's timing system, she far preferred the StreetTracks Gold exchange-traded fund, Fidelity Select Gold or, for particularly aggressive investors, ProFunds Precious Metals UltraSector.

With bonds, she put a sell on JP Morgan Bond Select noting that while the intermediate-bond fund should "synch up well with our timing model," the fund has actually been a laggard, and has not shown the kind of performance that resulted in the timing model triggering a buy signal for U.S. bonds on July 7. Hooper-Fournier suggested AIM US Government or, for aggressive investors, Direxion 10-Year Note Bull 2.5 as buys in the bond space.

During her appearance on "Your Money with Chuck Jaffe," Hooper-Fournier also noted that health-care funds look interesting again, having passed the initial measure her newsletter uses -- based on a 50-day moving average -- but lacking the longer-term signals used to confirm a "buy" recommendation.

With concerns such as the presidential election and its impact on health care and pharmaceuticals likely to keep the picture unclear for the foreseeable future, Hooper-Fournier suggested cautious buying -- including stops to make sure that losses can't pile up -- among health care funds. ICON Healthcare and Vanguard Health Care are possible buys. During her interview, Hooper-Fournier also put buy ratings on Merk Hard Currency and Fidelity Strategic Real Return, and sells on Kinetics Small Cap Opportunity and Janus Mid Cap Value."

That's what Ms. Holly thinks, given current circumstances. Wonder what "Mad Money" Cramer will have on offer later today...

Closing above $965 would give momentum traders some interesting ammo next week but unless July turns into March with an added dimension of armed conflict, some of the hedgie longs may not stick around to find out precisely when and where the envelope starts to tear from the stress.

Happy Trading, Pleasant Weekend. Try to glance at the news occasionally.

Jon Nadler
Senior Analyst
Kitco Bullion Dealers Montreal



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.