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Wednesday, August 26, 2009

What to do when the bounce stops bouncing

Sell oil and buy the dollar!
No one knows how long this rally will last – certainly no one here at The Daily Reckoning vacation headquarters. It will continue until it runs out of gas. That could be tomorrow. It could be months from now.

It will run out of gas sooner or later, and probably this fall. A real, durable bull market would require an economic boom – a genuine recovery. We don’t see that happening…

But people must think it is happening…

“There are signs of a recovery in the US…” was a popular line at last night’s cocktail party. Several friends mentioned it. Each time, we had the same reply – we wouldn’t bet on it.

Yesterday, the price of oil rose; it ended the day at $71. And the dollar stayed where it was – at $1.44 per euro. Investors are betting on recovery – despite our advice.

And when the recovery turns out to be a clunker, they’ll probably put these trades into reverse. Oil will go down; the dollar will go up.

You want to speculate, dear reader? Sell oil…buy the dollar. Wait for another crash this autumn.
-- from "Don’t Put Your Money on a US Recovery" by Bill Bonner

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