WHAT DID WE LEARN THIS WEEK TO MAKE MONEY NEXT WEEK?
After introducing guest trader Zach Karabell, aka "The Academic," the gang immediately dives into the main lesson learned after stocks soar to end the week (the highest close since June). The dollar also "exploded," with its biggest jump in 8 years against the euro. "Currencies typically do not move like that," says Dylan of the USD's 3.3% gain this week. The strong dollar pushed back commodities, which led the S&P 500 to its best week since April, due in part to the commodities pullback -- it ended the day up 2.4%.
Adami agrees with Dylan that there is a "dollar-led commodity move to the downside." Commodities are "broken" with the dollar rising, he says, and also firmly believes the USD will continue rising for the rest of the year. "Sell commodities into rallies; you don't buy the dips."
Macke agrees that commodities were an "overplayed group" and isn't going to fight the trend. "Even without the dollar, I was saying commodities were broken -- this breaks them more."
Carabell, however, feels it may be too early to say commodities are done for the year as there's still strong global demand. "It's still a demand-driven story... and this is not traded purely off of dollar weakness."
Dylan, in a quick bit of Trade School, underscores the fact that commodities are priced around the world in U.S. dollars, despite what currency is used to purchase them -- this is what ties the dollar to the global commodities markets.
Carabell says some companies will have anticipated the dollar's upward movement and have hedged their prices. So while not suggesting buying commodities on Monday, he's suggesting this pullback may not be long-term.
Macke disagrees, with a rant about a "Bad Trade Graveyard" and finishes, "This is going to bury people... on anything commodity-related."
Karen says it's not clear what's starting the dollar-commodities cycle, nor does it matter. "I wouldn't be long or short here." She also points out the effect on equities, "The momentum trade out is more powerful than any of the fundamentals." Still, it doesn't give her enough reason to go long on stocks yet.
Adami says a 6-month downturn in commodities is feasible. He says Europe is worse off than the U.S. but aren't going to raise rates. For his trading position, he says that some commodities have been so devalued that they've become attractive again, and as an example points out Freeport-McMoran, which has been "obliterated," its stock down around $30-35: "the valuations have become compelling."
Macke: "You have to trade the market you have, not the one you wish for." It's impossible to fight rallies. He plans to go long in the dollar and trade commodities like he does financials -- "buying the panic" but on a short leash.
With the last word, Carabell says, "I'm long Ms. O'Leary's cow."
BANKS SHAKE OFF BAD NEWS
Also today, banks made a bit of a comeback from its recent downward movement, rebounding 4%. Karen, who's been shorting a lot of them, did nothing with them today and is "absolutely sticking with them." She's comfortable with her short position, from data she's seen in equities, such as the Commercial Mortgage-Backed Securities (CMBS)getting wider.
Adami says we're getting to the levels where Jeff is saying "sell the rips." He points out UBS was up 3.5% today, when it was $20.57 stock a couple of weeks ago -- before its "powerful capitulation." Now, he advises, might be the time to profit from those banks that were capitulating. AIG also gave an opportunity today to buy during a dip and closed $5 up.
Zach says, "I'd be a lot more uncertain about the fundamentals underlying the financials then the fundamentals underlying commodities." It's been "a really good trade" and this may be the peak for the next several weeks.
Macke add that in term of financials, "don't confuse taking profit with getting short." He respects how financials have traded up despite recent bad news. He has no explanation for "how you can buy back all these munis and not have them cost you any money, which is the logic people seem to be using to buy financials." His advice: "Don't short it, but wait for buys."
STILL LOVIN' IT
Fast food stalwart McDonald's has been boasting excellent same-store sales recently, and its stock is at a 43-year high. Dylan asks Macke if he would go near it at this point, since he's liked and held it in the past. Macke says it's making him nuts and that it's "the best run company in America right this moment." He would definitely buy them on a dip.
Adami adds that after years of U.S. sales decline and growth in foreign markets, sales are now better in the U.S. than in those overseas markets. "If you want an exit point," he says, pointing at the massive 28M shares traded today. "Now is the time to take a profit."
Karen's explanation: "It must be all those obese Americans."
TOPPING THE TAPE: GREAT WEEK FOR TECH
Even on pull back days this week with financials, large cap tech names surged: Intel , Cisco, Apple and Microsoft.
Even Macke, traditionally ambivalent about tech, admits he wishes he was longer tech, but still hesitates to be too ambitious with MSFT because he's been "jilted" so often in the past. He is keeping an eye on EMC because they're still far from topped.
Adami likes Oracle , saying the firm is doing everything right: "the stock has gone straight up" to its highest since Feb 2001, and he still feels it's undervalued and worth getting into.
Karen reiterates the great week MSFT had, with $27B of market cap added on. Dylan asks if she believes speculation of a $20B buyback and she replied that while that number seems too high, she doesn't discount the rumor.
Carabell says the tech large caps are doing well in spite of the global economic slowdown, because companies need to spend in tech to compensate declining demand by enhancing productivity. IT plays a big part in improving inventory control and managing global supply chains -- it's a big part of Oracle and Cisco.
DOLLAR BREAKOUT... OIL BREAKDOWN
Dennis Gartman, of The Gartman Letter joins the show via satellite from Virginia Beach to address the dollar-oil correlation. He agrees with Dylan that rarely does currency move as much as 3% in two weeks -- it's virtually unheard of.
This "huge bottom" in the U.S. dollar has taken time to build but has taken off. "You have to buy weakness in the dollar," says Gartman. "You do not sell strength in it."
Gartman believes the best vehicle to take advantage of the appreciating dollar for average traders (those who don't normally trade currencies) is the Dollar Index, which pits the dollar against a "smorgasboard" of other currencies.
Responding to a question from Zach, Gartman says that the widespread volatility of other markets will likely impact currencies as well. "Volatility is de rigeur in all markets now." The same will probably be seen in currency markets.
Dylan asks what the correlation is between the dollar and oil and Gartman says it's 1:1. Strong dollar begets weaker commodities, whether oil, gold or grain. USD is the linkage for purchasing commodities.
Gold is done, Gartman says. A few months ago, gold stopped rising while oil was still bullish. That was a signifier -- for commodities, gold is the "big" one -- of coming trouble for commodities. After being a gold bull for three years, Gartman no longer has a gold position.
A Fast Money viewer, Ian in NY, asks whether will the dollar rally will hurt multinationals doing business abroad. Gartman says yes, these companies have reaped years of benefits with a weak U.S. dollar but will start to see some trouble. Companies will have to "unwind" hedges based on a weak dollar. Macke says he doesn't think multinationals will be affected too adversely, in terms of the EPS, but it will lead to higher multiples for them.
In his final question, Dylan asks Gartman what he will focus on for the next week. To answer, Gartman admits that he bought stocks and sold bonds yesterday and "looked like a fool." Now he's buying more stocks and selling more bonds.
HAPPY CLOSE TO THE WEEK
Dylan and Maria Bartiromo rang the closing bell at NYSE, bringing to close a remarkable week of trading. Adami to Dylan: "Love Maria! Like you, but love Maria!"
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On Aug 8 2008, 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 (WMT) (COST) (DIS) (MSFT) (EMC); Adami Owns (AGU) (C) (BTU) (GS) (INTC) (MSFT) (NUE); Karabell Owns (AAPL) (AGU) (GOOG) (JPM) (SINA) (SLB); Finerman's Firm Is Short (IYR) (IJR) (MDY) (SPY) (IWM) (XLF); Finerman's Firm And Finerman Own (C) Leaps; Finerman Owns (GS); Finerman's Firm Owns (MSFT) (SUN) (TSO) (VLO); Gartman Is Short (TAP) (TM) (MA); Gartman Owns (AFFY) (FLO) (PLL) (IBM) (HOG) (SDS); Gartman Owns (ANDE) And Is Short (ADM); Gartman Owns (QQQQ) And Is Short (TLT); CIBC Gartman Index Owns Copper, Aluminum, Wheat, Corn, Soybean, Natural Gas, 10yr Canadian Bond, Australian Dollar; CIBC Gartman Index Is Short Crude Oil, Sugar, Euro; Roger Neshem Has A Business Relationship With Monsanto; Roger Neshem Owns (DE). PRE-PRODUCED: Finerman Owned (CSCO) On 7/14/08, Finerman's Firm Owned (ANF) Call Spreads On 8/5/08, 8/6/08, Macke Owned (INTC) On 7/10/08.