Thursday, December 10, 2009

The dollar, utilities, health care and technology stocks make up "the safety trade."

by Howard Penney, Managing Director,

It's a cruel world out there and in this business you need to be critical to survive, stand up for what you believe and be factually correct. Most importantly, people want you to "make a call."

I agree that Ben Bernanke is completely compromised and Tim Geithner is out of his league and should never have been appointed to Treasury. At the same time they are the two people in Washington that have "inside information."

During this past week Ben had already said the U.S. economy faces "formidable headwinds" and then yesterday, we learned that the Treasury Secretary notified Congress that he is extending the Troubled Asset Relief Program through Oct. 3, 2010. Why? What do they know that I don’t? A lot, because they have "inside information!"

I don't have inside information, but I have the Research Edge Macro Models and this is what I do know…

(1) The U.S. dollar is establishing a new level of support with the trend line at 76.41--the buck is bottoming and is still a safe haven.

(2) The Semis are rallying--up 11 of the past 12 days.

(3) Oil is falling--it's currently trading at a two-month low--the reality of supply and demand.

(4) Gold has fallen just over $100 (9%) in a week--just a bubble?

(5) Copper has fallen for six straight days (the longest losing streak in a year)--the reality of supply and demand!

(6) Financials have underperformed the S&P 500 by 660 basis points over the past three months--this could be trouble!

Seeing the financials dramatically underperform is unnerving and could be a leading indicator of things to come. Whether or not Ben and Tim know something that I don't about the health of our financial system, Mr. Market is trying to tell us something. The banks are not lending and the FDIC continues to close more doors, while the "son of subprime" is going to hit with another wave of defaults in 2010. Ben can't raise rates and the Treasury Secretary is going to need TARP in 2010! We are in a very bad situation.

Have the financials truly absorbed all of the asset deflation in the system and are the current capital ratios real?

I believe technology, utilities and health care are part of the new "safety trade." Utilities have yield and growth and are a stealth play on green technology. Health care is safe from the perils of Washington and selected technology names are beneficiaries of deflation.

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