Economic data released in recent month or so is on a absolute and relative basis weak. The difference from July is that the consensus has moved downwards, so the markets focuses on comparing actual data with consensus and disregarding absolute levels.

But we are here to earn some money, not waste our time on lamenting whether someone (in this case consensus) is right or not.

Economic data released in recent month points to only marginal and slowing growth. Consumer demand proxies point to deceasing level of consumer demand. Unemployment is high and it is not falling. The government stimulus is wearing off.

I still believe that the market is overvalued; I believe that there is disconnect in what equity and bond markets are pricing – with equity being wrong; I believe we will correct to sub 900 level in the S&P 500.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2011); I believe that the quantitative easing will get some sort of extension comparable in size with the first leg (probably when we see second notable leg down). I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

I believe yields will go further down and curve will flatten further; in the longer term I believe the yields will be comparable to Japanese (bellow 1.5% for 10-year government bonds and bellow 2% for 30-year government bonds)

Commodities

Energy Commodities

Crude Oil – fundamentally, the market is over supplied; since crude oil is a high beta play on equity markets my target for WTI spot at 50 in the next six months.

U.S. natural gas – stockpiling will be higher in the following weeks (mild temperatures) so the supply/demand balance will be better then last year, but altogether bad. This points that we have only technical factors on our side, but price failing to rebound taints that picture.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets.

The China slowdown is confirmed by the numbers. Short both aluminum and copper.

Steel – same as with aluminum and copper it will follow China down path.

Agricultural Commodities

We had a rally here, I expect a reversal on profit taking and sluggish fundamentals.

Precious Metals

Short term, I see gold overbought and over-owned.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

I still expect a strong U.S. dollar and weakening of the Euro. I expect yen weakening against U.S. dollar and the Euro.  Resource currencies could lose part of their strength on weaker commodity prices.

Economic data released in recent month or so is dominated by bellow consensus readings and on absolute level pointing to only marginal and slowing growth. Consumer demand proxies point to deceasing level of consumer demand. Unemployment is high and it is not falling. The government stimulus is wearing off.

But the market is rising despite all of that and contrary to my (correct) macro calls.

I still believe that the market is overvalued; I believe that there is disconnect in what equity and bond markets are pricing – with equity being wrong; I believe we will correct to sub 900 level in the S&P 500.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension (probably when we see second notable leg down). I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates into rising yields at near end of the curve translated into curve flattening in short term at least.

Unchanged and correct.

Commodities

Energy Commodities

Crude Oil – fundamentally, the market is over supplied; since crude oil is a high beta play on equity markets my target for WTI spot at 50 in the next six months.

U.S. natural gas – hedge funds going long here on improving fundamentals. Long.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles are at multi-year high.

The China slowdown is confirmed by the numbers. Short both aluminum and copper.

Steel – same as with aluminum and copper it will follow China down path.

Agricultural Commodities

We had a rally here, I expect a reversal on profit taking and sluggish fundamentals.

Precious Metals

Short term, I see gold overbought and over-owned.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

I still expect a strong U.S. dollar and weakening of the Euro. Resource currencies could lose part of their strength on weaker commodity prices.

Equities

Only extremely favorable economic data could change the negative trend established. This is highly unlikely. So I would say we will soon see S&P 500 at 875.

On a macro level, the stimulus is wearing off, politicians and central bankers are not ready to continue with loose fiscal an monetary policies, just the opposite, austerity is the game. For now.

Private demand is weak. Private investments also show no strength.  Real-estate is burdened with unsustainable debt levels, still to high prices and weak demand. Without real-estate investment recovery, we cannot talk on sustainable and historically high economic growth rates.

On company level, the margins are record high, having high margins, the competition and price decreases to increase sales will push for a margin normalization.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension (probably when we see second notable leg down). I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates into rising yields at near end of the curve translated into curve flattening in short term at least.

Commodities

Energy Commodities

Crude Oil – fundamentally, the market is over supplied; since crude oil is a high beta play on equity markets my target for WTI spot at 50 in the next six months.

U.S. natural gas – Drilling ban gave a lift to the gas markets, but the effects of that will not be short term, so it looks we will return to 4 USD/MMBtu which could be called a floor. I would be a buyer bellow 4 USD/MMBtu.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles are at multi-year high.

The China slowdown is in the air. Short both aluminum and copper.

Steel – same as with aluminum and copper it will follow China down path.

Agricultural Commodities

Been totally wrong on this, the production is outweighing demand in almost all commodities. 

Precious Metals

Short term, I see gold overbought and over-owned, especially having in mind the dollar strength.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

For the time being I expect a strong U.S. dollar and weakening of the Euro. Resource currencies could lose part of their strength on weaker commodity prices.

Equities

Only extremely favorable economic data could change the negative trend established. This is highly unlikely. So I would say we will soon see S&P 500 at 900.

On a macro level, the stimulus is wearing off, politicians and central bankers are not ready to continue with loose fiscal an monetary policies, just the opposite, austerity is the game. For now.

Private demand is weak. Private investments also show no strength.  Real-estate is burdened with unsustainable debt levels, still to high prices and weak demand. Without real-estate investment recovery, we cannot talk on sustainable and historically high economic growth rates.

On company level, the margins are record high, having high margins, the competition and price decreases to increase sales will push for a margin normalization.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension (probably when we see second notable leg down). I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates into rising yields at near end of the curve translated into curve flattening in short term at least.

Commodities

Energy Commodities

Crude Oil – fundamentally, the market is over supplied; since crude oil is a high beta play on equity markets my target for WTI spot at 50 in the next six months.

U.S. natural gas – Drilling ban gave a lift to the gas markets, but the effects of that will not be short term, so it looks we will return to 4 USD/MMBtu which could be called a floor. I would be a buyer bellow 4 USD/MMBtu.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles are at multi-year high.

The China slowdown is in the air. Short both aluminum and copper.

Steel – same as with aluminum and copper it will follow China down path.

Agricultural Commodities

Been totally wrong on this, the production is outweighing demand in almost all commodities. Corm maybe an exception.  

Precious Metals

Short term, I see gold overbought and over-owned, especially having in mind the dollar strength.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

For the time being I expect a strong U.S. dollar and further weakening of the Euro. Resource currencies could lose part of their strength on weaker commodity prices.

British Pound also does not look good.

With my 1,200 S&P 500 target reached I’ve moved to a kind of a ambiguous stance to the markets. Now I believe the equity markets are bound for a 10%+ down move at least.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ‘90ies.

Recent pickup in consumer spending was due to decreased savings rate, not income growth, so I believe it is unsustainable mid term. The inventory cycle has ran its course, government stimulus is wearing off. A slower GDP growth is almost certain for the second half of the year.

There is a possibility of a equity bubble fueled by low interest rates, but for the time being I’ll stick with the bear market theory.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension. I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates into rising yields at near end of the curve translated into curve flattening in short term at least.

Commodities

Energy Commodities

Crude Oil – a weak uptick in demand is coupled by massive stockpiling. Record spreads (WTI-Maya, Brent-Urals, Canadian oil sands-WTI and a  broken WTI- Brent premium) suggest massive oversupply. Crude oil is a high beta play on equity markets; if we see equities falling; Crude oil price will melt bellow $50.

U.S. natural gas – the heating season has ended, and the draw was not high enough to support natural gas prices. Nice speculative buy opportunity as short squeeze will be massive.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles are at multi-year high.

The China slowdown is in the air. Short both aluminum and copper.

Steel – same as with aluminum and copper it will follow China down path.

Agricultural Commodities

Been totally wrong on this, the production is outweighing demand in almost all commodities. Corm maybe an exception. 

Precious Metals

Short term, I see gold overbought, especially having in mind the dollar strength.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

For the time being I expect a strong U.S. dollar and further weakening Euro. Resource currencies could lose part of their strength on weaker commodity prices.

Although I’m convinced that the economy is not pulling a V-shaped  almost everywhere except in China and in their commodity based economy satellites I believe that in the short term the equity gains will continue. I have a 1200 S&P 500 target.

I have only a small exposure to the markets (via a June SPY 105/106 put ratio backspread) to keep interest for the markets. It’s performing bad.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ‘90ies.

There is a possibility of a equity bubble fueled by low interest rates, but for the time being I’ll stick with the bear market theory.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension. The rationales are to keep mortgage rates low and to remove assets from bank balance sheets to keep banking system minimum liquid. On the other side I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates in higher yields at near end of the curve translated into curve flattening in short term at least.

Commodities

Energy Commodities

The demand has not returned, in contrary it is flirting with lowest levels in decade. We still have lot of  crude oil and especially derivatives stored on sea. I would expect crude oil below $50 in the first half of the year. Looking for a short position at the top of the range (that’s now).

U.S. natural gas – the heating season has ended, and the draw was not high enough to support natural gas prices. Nice speculative buy opportunity as short squeeze will be massive.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles are at multi-year high.

I would take profits from the copper price increase; possibly reverse position to short.

Steel – China demand is so strong that despite record stockpiles levels the price is moving higher. Dangerous market.

Agricultural Commodities

Been totally wrong on this, the production is outweighing demand in almost all commodities. Corm maybe an exception. 

Precious Metals

The whole complex suffered a lot on back of stronger U.S. Dollar. I expect that we will see additional loses before precious metal return to the what I believe secular bull path.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

For the time being I expect a strong U.S. dollar. JPY against USD a potential long.

In the macro arena we have leading indicators rolling over, and a stream of worse-than-expected data pieces on U.S. housing, U.S. employment, U.S. durable goods ordered and large move lower by consumer confidence.

Seems that the markets do not appreciate the data. Things that move the markets are only FED policy on rates, dollar strength and Greece debt problems. China credit tightening in forgotten for the time being (at least to the next announcement).

All dough I’m convinced that the economy is deteriorating  almost everywhere except in China and in their commodity based economy satellites I have only a small exposure to the markets (via a June SPY 105/106 put ratio backspread) to keep me interest for the markets. I do not have a clear conviction short term.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ‘90ies.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension. The rationales are to keep mortgage rates low and to remove assets from bank balance sheets to keep banking system minimum liquid. On the other side I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates in lower yields and curve flattening in short term at least.

If we have longer term treasury bonds moving out of the post Lehman trading range; I would be a buyer.

Commodities

Energy Commodities

The demand has not returned, in contrary it on the lowest levels in decade. We have lot of  crude oil and especially derivatives stored on sea. I would expect crude oil below $50 in the first half of the year. Looking for a short position at the top of the range.

U.S. natural gas – we have seen a large decrease in stockpiles in last couple weeks.  This has supported price in recent weeks. I would expect U.S. natural gas moving to the lower end of trading range ($4.5) as heating season ends.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. The stockpiles of copper reached 6 year high in London and a 7 year high in Shanghai.

In short term the copper price will be supported by Chile supply disruptions. Chile accounts for approximately a third of world output. The bulk of production is located in the north of the country (1.000 km from the earthquake hit region of the country) and is operating normall. The risks come from the power disruptions and transport difficulties. My guess is that the output will not suffer, but I expect that we will have precautionary buying. I would chose to go speculative long in copper and watch out for a reversal.

Because of production process differentials; bauxite from which is aluminum produced is one of most common ores in earths crust; copper ore very scarce; I would look for a aluminum short position.

Steel – limited vehicles to invest; I expect further losses on deteriorating iron ore/final product differential.

Looking for a short position in aluminum.

Agricultural Commodities

The supply and demand fundamentals are favorable here (wheat excluding for the time being); they have lagged other commodities rally; whole universe potential long play, looking for a entry point.

Corn interesting as bad weather is delaying planting season. Will watch this segment closely.

Precious Metals

The whole complex suffered a lot on back of stronger U.S. Dollar. I expect that we will see additional loses before precious metal return to the what I believe secular bull path.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

For the time being I expect a strong U.S. dollar, especially against euro and British pound. I expect all commodity based currencies price risk skewed to the downside as strong dollar is negative for the commodity prices.

Looking for a further JPY strength to re initiate short USD/JPY position (at the top of the range).

We have seen a meaningful correction in equities in recent couple of weeks, we have a market that fails to react to presumably good news, we have low levels of cash in equity mutual funds and still high number of bulls; high beta stocks suffered massively;  For me this is a setup for reversal, I expect further short term losses.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ‘90ies.

I’m running a short SPY positions. No individual names or sectors; If I would have to chose I would go with Financials, Real-Estate, Consumer Discretionary and Industrials short vs. Health Care, Consumer Staples and Utlities Long.

Geographically speaking (relative) Long Europe vs. Short U.S.; Long U.S. vs. Short Emerging Markets. Short Brasil.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension. The rationales are to keep mortgage rates low and to remove assets from bank balance sheets to keep banking system minimum liquid. On the other side I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates in lower yields and curve flattening in short term at least.

Long term view would be exactly the opposite.

If we have longer term treasury bonds moving out of the post Lehman trading range; I would be a buyer.

Commodities

Energy Commodities

The demand has not returned, in contrary it on the lowest levels in decade. We have lot of  crude oil and especially derivatives stored on sea. I would expect crude oil below $50 in the first half of the year. Looking for a short position.

U.S. natural gas – we have seen a large decrease in stockpiles in last couple weeks.  This has supported price in recent weeks. Same as with crude oil this rate of decrease in stockpiles has slowed down. I would expect U.S. natural gas moving to the lower end of trading range ($4.5).

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. Because of production process differentials; bauxite from which is aluminum produced is one of most common ores in earths crust; copper ore very scarce; I would look for a aluminum short position. Copper has both industrial metals and precious metals characteristics, it is scarce, not my number one candidate to short.

Steel – limited vehicles to invest; I expect further losses.

Looking for a short position in aluminum.

Agricultural Commodities

The supply and demand fundamentals are favorable here (wheat excluding for the time being); they have lagged other commodities rally; whole universe potential long play, looking for a entry point.

Precious Metals

The whole complex suffered a lot on back of stronger U.S. Dollar. I expect that we will see additional loses before precious metal return to the what I believe secular bull path.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

As stated earlier in the post I believe Mr. Bernanke will further debase U.S. dollar ; I believe BOJ will do the similar.

I believe Greece problems are overextended, yes, the odds are high that they will default, but in terms of the Greek economy compared to EMU economy, it really doesn’t matter.

ECB (together with Bank of Canada and Reserve Bank of Australia) looks as most prudent among developed economies central banks. I would go long with the Euro.

Looking for a further JPY strength to re initiate short USD/JPY position.

Equity performance was impressive in recent month, down to the last trading day of the year. Thursday trading showed that the investors are not so confident that the upside will continue, revealing, maybe a moment of truth. Everybody is long because of fear not to miss further gains, but scared of a potential slip.

The new regulation for real-estate developer land purchases in China; slowing credit growth and Rusal IPO which could capture excess cash which is fueling the rally and serve as a sort of a global wide correction catalyst.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ‘90ies.

I will be looking for short opportunities. Only sectors I view undervalued are utilities and health-care, but I don’t plan to take positions because of lack of catalysts.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects (I don’t expect a rise in 2010); I believe that the quantitative easing will get some sort of extension. The rationales are to keep mortgage rates low and to remove assets from bank balance sheets to keep banking system minimum liquid. On the other side I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates in lower yields and curve flattening in short term at least. I would also expect corporate credit both spread and yields falling. Long term view would be exactly the opposite.

If we have longer term treasury bonds moving out of the post Lehman trading range; I would be a buyer.

Commodities

Energy Commodities

We have seen a couple of favorable U.S. stockpiles reports giving support to the crude oil prices. The stockpile decrease is slowing, so I believe the draw was a result of a heating season start and people were filling their heating systems. The demand has not returned, in contrary it on the lowest levels in decade. We have lot of  crude oil and especially derivatives stored on sea. I would expect crude oil below $50 in the next 6 months. Looking for a short position.

U.S. natural gas – we have seen a large decrease in stockpiles in last couple weeks.  This has supported price in recent weeks. Same as with crude oil this rate of decrease in stockpiles has slowed down. I would expect U.S. natural gas moving to the lower end of trading range ($4.5).

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. Because of production process differentials; bauxite from which is aluminum produced is one of most common ores in earths crust; copper ore very scarce; I would look for a aluminum short position. Copper has both industrial metals and precious metals characteristics, it is scarce, not my number one candidate to short in falling U.S. dollar environment.

Steel – limited vehicles to invest; I think it is overvalued, but not looking to play that.

Looking for a short position in aluminum.

Agricultural Commodities

The supply and demand fundamentals are favorable here (wheat excluding for the time being); they have lagged other commodities rally; whole universe potential long play, looking for a entry point.

Precious Metals

I would expect a positive employment report next week; a reaction from the markets would be a sell of in precious metals; this would be, in my view, a favorable moment to re initiate primarily long gold position.

Long term, in light of further fiat currency confidence problems the precious metals are place to be.

Currencies

As stated earlier in the post I believe Mr. Bernanke will further debase U.S. dollar ; I believe BOJ will do the similar.

ECB (together with Bank of Canada and Reserve Bank of Australia) looks as most prudent among developed economies central banks but I believe that E.U. economy will suffer from strong euro, also possible that they will do something to keep euro down, but as a response to falling USD and JPY later down the road.

Looking for a JPY strength to re initiate short USD/JPY position.

Equities

I have been surprised by the market strength as the market rejected the Dubai turmoil as a correction catalyst. This has substantially changed my views on the markets. The belief (in my view incorrect) that the economy will start recovering at average post recovery rates is strong. The Dubai spurred correction has only proved to be a buying opportunity. Because of that I wouldn’t exclude S&P 500 moving ahead of 1200 points. I would also expect short-term equity strength on both global and emerging markets level.

My mid-term view remains unchanged – this is just a bear market rally; U.S. and E.U. economies will experience same patterns in both economy and markets as Japan in ’90ies.

I believe it is too risky to be long equities, as the markets could change course any moment, so I will be looking for short opportunities. Only sectors I view undervalued are utilities and health-care, but I don’t plan to take positions because of lack of catalysts.

Bonds

I think that Mr. Bernanke game plan is to have interest rates low longer than anyone expects; I believe that the quantitative easing will get some sort of extension. The rationales are to keep mortgage rates low and to remove assets from bank balance sheets to keep banking system minimum liquid. On the other side I expect that the short-term price trends in economy to be deflationary because of private and household sector de-leveraging (leading to weak demand) and large output gap (leading to strong supply).

Because of deflationary expectations I believe that the demand for government debt will be strong especially from bank side as they have large amount of cash reserves they are not using to lend to private sector.

All that translates in lower yields and curve flattening in short term at least. I would also expect corporate credit both spread and yields falling. Long term view would be exactly the opposite.

Commodities

Energy Commodities

I believe that the crude oil is one of most overpriced commodities when looking at demand and supply fundamentals. The crude price is fulled only by U.S. dollar weakness and hopes of economic and demand improvements. I expect the demand to remain flat; I expect China will slow down its stockpiling efforts and supply glut to push crude oil price below $50 in next 6 months.

Natural gas is far better priced than crude oil, but the slow demand (despite low price) and persistent supply do not warrant any improvements in both fundamentals and price of the commodity in near term future.

Only interesting commodity in this arena is uranium, but I am not aware of vehicles to invest in uranium for a retail investor. The alternative is to invest in mining companies, but that brings additional risks. Just an observer for the time being.

Industrial Commodities

The fundamentals for both aluminum and copper are similar, the oversupply is evident but Chinese stockpiling and investment demand are keeping excess supply off the markets. Because of production process differentials; bauxite from which is aluminum produced is one of most common ores in earths crust; copper ore very scarce; I would look for a aluminum short position. Copper has both industrial metals and precious metals characteristics, it is scarce, not my number one candidate to short in falling U.S. dollar environment.

Steel – limited vehicles to invest; I think it is overvalued, but not looking to play that.

Agricultural Commodities

The supply and demand fundamentals are favorable here (wheat excluding for the time being); they have lagged other commodities rally; whole universe potential long play, looking for a entry point.

Precious Metals

Recent BOJ actions have convinced me that a competitive currency debasement is a high possibility scenario. I light of further fiat currency confidence problems the precious metals are place to be. I’m running a long gold position despite not being a gold bug and not agreeing with all gold investing premises. Careful, because of a possible short term correction, but a believer in secular upward potential.

Currencies

As stated earlier in the post I believe Mr. Bernanke will further debase U.S. dollar ; I believe BOJ will do the similar (running short USD/JPY position with which I am not so happy). So short USD vs. all mayor currencies , short JPY against USD.

ECB (together with Bank of Canada and Reserve Bank of Australia) looks as most prudent among developed economies central banks but I believe that E.U. economy will suffer from strong euro, also possible that they will do something to keep euro down, but as a response to falling USD and JPY later down the road.