Thursday, May 29, 2008


A regular reader has suggested that DUG might be the thing to buy today. DUG is the Ultra Short Oil play. It goes up when the price of oil goes down and it trades like buying a stock on margin. The price hit 54 back last August and is around 28 today. Room for a 100% gain with little resistance.

Another buy, among many, is the financial stocks. A significant drop in the price of oil could bring inflation and interest rates down while giving mortgage payers an economic boost. As a caveat, predicting interest rates is as tough a game as any. One might even suggest that a decline in oil will work like a tax cut, stimulating the economy and thus increasing interest rates. Still, the "book" says, financial stocks tend to turn up at about the time the price of basic materials and energy prices turn down.

Please note that there is once again the potential for disappointment in today's numbers. The price of gasoline never caught up to the price increase in oil. Today, the wholesale price of gasoline has been down only a penny or two while the oil price was down 2 or 3 dollars. Oil companies will attempt to rebuild their crack spreads in the days ahead, no matter which way the price of oil goes.

By the way, the collapse in certain metal and agricultural commodity prices is into the second and third months. Today's revision to GDP shows that there has been no recession. The odds of 4% or higher real growth by next quarter has increased. A part of the reason the real growth is likely to rise is because the inflation rate should moderate.

Oil down $4!