It’s going to be another light trading week.
Europe is off 1.25% this morning (8am) as the Shanghai fell 2% and the Hang Seng dropped 0.3% on news that China was raising rates 0.25% for the second time in 2 months – weeks ahead of what most considered a fairly aggressive tightening schedule. Chinese Premier Wen Jiabao voiced confidence Sunday that his government can contain rising prices.
Speaking to listeners during a visit to state radio headquarters, Mr. Wen acknowledged that recent price increases have “made life more difficult” for middle and lower-income Chinese. But, pointing to measures the leadership has taken in recent months, he said: “As it looks now, we are completely able to control the overall level of prices.” The remarks, in a session where Mr. Wen was asked repeatedly about prices, reflect the issue’s political sensitivity for Beijing.
Our futures would certainly be taking a much bigger hit if the dollar wasn’t down half a point since Friday, inflating the prices of stocks and commodities and giving us the illusion of stability in what can easily become a rough morning. Of course we felt that last week’s zero-volume move higher was fake, Fake, FAKE but, when the acting is that good, there’s nothing else you can do but sit back and enjoy the ride. One long we did take on Thursday was a long on the VIX as we expect volatility to perk up in January. We took a short position on FCX at 2pm ($119) as a proxy for shorting gold and copper and we have an obvious exit point if they hit $120.
On the other side of the tape, I put up 4 major inflation hedges for 2011 that will serve us all well in a runaway market this year (along with one strategy that can give you up to a 50% discount on an Annual PSW Membership). These are, of course, bets that Chairman Wen is wrong and prices cannot be contained. After all, what difference does it make how much China tightens if The Bernank has the spigots in the US running full blast and flooding the World with Dollars? The more dollars he prints, the more dollars are demanded to buy oil, gold, copper, cotton, silver, corn and whatever other dopey thing Goldman Sachs can buy low and sell high and those dollars go…
