2008

Since my last post on Dec.14th , S&P500 was down from 1467 to 1390 today. Meanwhile, GDX was up from 43.8 to 50.7 today. This is the first significant divergence between precious metals and general market. This is a very important sign!

For 2008, I think we have following main trends to play:

1. Dollar continue to decline due to the twin deficits. Yes, there will be bounce along the way, but I think Dollar will end lower against major currencies at the end of 2008. Dollar has to hit new lows in order to have significant impact to reduce trade deficits.
2. US may head into recession. Credit crunch, housing, negative saving rates, etc.
3. Emerging markets (BRIC) are still very strong, so demand for commodities are strong.
4. Election year is usually good for stock market (government will add funds to make economy strong for election purpose). This is a counter argument against recession. But this is a plus for inflation and the decline of dollar.
5. Inflation is edging up, you can find food and energy as an example, even though they're not in the core inflation complex Fed is watching.
6. Fed has to cut rates for economy, good sign for gold and bad sign for dollar.
7. Geopolitical events, US elections, China and Taiwan, Middle East, South Asia. People want to own gold, which just hit another record today.
8. Global warming will have more impact on economy down the road, and clean energy is one way to play this long term (10-50 year) trend.

Based on these, I have following ETFs that I think will do well in 2008 and in the future:

1. GDX. If gold is going to $1000 this year, GDX will outperform gold. This is the play against inflation, geopolitical crisis, and the decline of dollar.
2. DBA. Agriculture play. It has Corn, Wheat, Soybean and Sugar.
3. DBC. Commodities ETF. It has oil, natural gas, gold, wheat, corn, aluminum. But over 50% are tied to energy (oil).
4. NLR. Nuclear, uranium mining, nuclear operators. This is a energy, clean energy (global warming), foreign (Japan, Europe, Canada, Australia) play. It's like GDX, there are lot of companies in this ETF.

Out of these 4, I like DBA the most, then it's GDX, and DBC and the last one is NLR. I think all 4 of them will outperform SPY and QQQQ this year. As a matter of fact, I think short ETF may finally do better than SPY and QQQQ this year. But, the lessons I learned last year, I will not buy short ETF and will gradually add the above 4 ETFs.