Reading The Fed
Dennis Gartman joins the traders to read the tea leaves ahead of Bernanke’s speech and the inflation data this Friday. Does anything signal more easing ahead?
The notes out of last month’s Fed meeting make it clear, Gartman says. The central bank is not worried about inflation. In fact, it deleted every mention of inflation from the notes, which signals to Gartman that the easing will continue. If that’s the case, then the trade is simple, he says: Buy gold and sell the U.S. dollar.
Gold has been consistently moving higher for the past five years. As long as the Fed shows it is more concerned with economic growth than inflation, the upside in gold will continue. Consequently, the downward pressure on the dollar is also likely to continue, he says. Buy the weakness, don’t sell the strength, Gartman says.
Investors should stop thinking of September’s Fed cut as a statement of presence by Bernanke. Sure, he’s the new sheriff in town, “but we have an awful lot of lieutenants” in the form of Fed regional presidents and governors. And the fact that the vote was unanimous is evidence to Gartman that it won’t be “one and done” for this Fed.
But a weakening dollar is a basic catalyst for inflation, Tim Seymour says. If the dollar continues to depreciate, it will have a huge inflationary impact – an issue the Fed did address in its last meeting.
Gartman says it is the Treasury Department’s job to worry about the dollar. And until Henry Paulson acts, it’s a safe bet to short it.
Instead of buying gold stocks, Gartman and his firm prefer to buy the commodity through the Gold ETF (GLD) because it trades tick for tick with the futures and without the extreme volatility.
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Trader disclosure: On Oct 10, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders Macke Owns (DIS), (INTC); Pete Najarian Owns (LXK), (ZMH), (VCLK), (GOOG); Finerman's Firm And Finerman Own (TEL), (TYC); Finerman's Firm Owns (COP), (DAI), (MSFT), (NVT), (TGT), (WMT), (YHOO); Finerman's Firm Owns S&P 500 Puts; Finerman's Firm Owns Russell 2000 Puts; Seygem Asset Management Owns (AA), (F), (GLD), (IRBT), (MSFT), (SBUX), (SSL); Seygem Asset Management Is Short (TKC); Lukoil Trades Over The Counter In The U.S. But Trades On The Exchange In London; Jon Najarian Owns (GOOG), (YHOO), (BHI)
Gartman Owns Gold, (GMO), (SJT), (FTK), (CF), (AAPL), (PBR), (CAL); Gartman Is Short (TLT) (COP) (SBUX), (ABK); CIBC Gartman Index Owns Crude Oil, Wheat, Corn, Soybeans, Gold: CIBC Gartman Index Is Long Of Chinese Stock Futures And Short Of The U.S. Market