Stocks Roar Higher, North Korea Not So Bad

Tuesday, June 15, 2010

Brazil North Korea fansNot the most exciting day of soccer today as Slovakia tied New Zealand 1-1 in the opening match and Portugal and Ivory Coast drew to a 0-0 tie. I must say I was impressed with North Korea's play in the 2:30 time slot against powerhouse and World Cup favorite, Brazil. North Korea held Brazil scoreless well into the second half until their goalkeeper committed the cardinal sin of being beat to the near post on a no-angle shot off the endline. Great vision and a brilliant through ball took Brazil up 2-0. But, North Korea kept on fighting and grabbed one with just minutes to go for a 2-1 finish. The two selfish shots in the final minutes from Jong Tae-Se's aggravated me; how can somebody living under a communist system be so selfish I ask? I'll admit I almost found myself rooting for North Korea, the massive underdog and global pariah. How can one not feel bad when North Korean players admit to seeing cell phones for the first time in their lives? Kim Jong Il will not even allow games to be televised in the country. Yet he will show highlights of the matches. I imagine the purposeful impression being something along the lines of "NK was the best team out there but was cheated out of victory by the capitalist pigs". But it's great to see them on the world stage and I hope this can help slowly erode the barriers of isolation.

So what does contagion mean again?? It appears that Wall Street's amazingly short attention span has already shifted away from Greece and the meltdown in Europe as headlines of debt fears have moved to the back pages. The Dow closed up 214 points solidly back above the closely watched 200-day moving average. I continue to stay long the SPY and will look at add on a pullback. Overall, I want to be long this market for the snapback trade but ultimately will look to only be long particular companies as I believe the greatest returns versus risks will come from individual security selection over diversified baskets (more on this in an upcoming post).

Gold rallied 1.0% along with equities throughout the day rising to the top end of the range within the recent base as the dollar index dropped 0.7%. I added aggressively at the lower end of this base in GLD against the $1,220 bottom side in gold futures. It looks like today was a particularly bullish sign for the shiny metal and clearing $1,240 should pave the wave to new all-time highs. A long-term weekly chart shows a high level consolidation just above previous highs. I would expect the next wave of buying to generate a very large move to the upside and I am positioning accordingly.

The creditor (China) versus debtor (US) nation debate is heating up as China responded to America's constant complaints about China's currency manipulation. The Foreign Ministry spokesman, Qin Gang, said last night: "We hope that American politicians and others concerned can seriously consider how to resolve the structural problems in their own financial system, instead of blaming others." Those is fightin' words if I ever heard 'em. Frankly, I agree with China though. I believe a slow appreciation of the renminbi is in the best interests of everyone but China is rightly concerned about allowing this happen too quickly and under the wrong circumstances. With the US running a $1.6 trillion budget deficit and China acting as our largest creditor I think we would be wise to keep this relationship diplomatic.

Disclosure: Long SPY, GLD, FXI.
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