Trader Talk

Money Leaving Commodities for Techs, Banks

It's finally happening. The "long commodities/short dollar" trade that has been the primary trade for the past three months is clearly in the early stages of unwinding, and stock traders could not be happier.


-- the dollar is approaching its highest levels since February;

-- oil hit $120 earlier in the week, is now down to $111 (down 8 percent)

-- gold hit $1,000 in March, now $850 (down 15 percent!);

-- fear is down: the VIX is at its lowest level since December

What has this done for the stock market? Money is coming out of energy/commodity stocks:

-- gold stocks like Barrick , which hit historic highs in March, are down over 30 percent;

--oil/gas exploration and production stocks like Apache were at historic highs a week ago; it's dropped nearly 20 percent since then;

--same with many agricultural stocks; Potash hit historic highs a week ago, down 12 percent since then;

And into:

--Techs: S&P Tech Sector Index now at its highest level since January; the classic fast-money names like Google, Apple, Research in Motion, and are all breaking out;

--Financials: Goldman Sachs, Merrill Lynch, Morgan Stanley at multimonth highs in brokers; JPMorgan at highest level since July (!).

This could not happen at a better time.

You can debate whether or not the subprime crisis was the greatest financial debacle in decades, but there is little doubt that this round of energy and food inflation will be a real problem for the global economy if it continues much longer.

Just imagine what will happen if China continues to raise prices because of inflation just as demand is slowing down in the United States. Now that is a virtuous cycle that no one wants to see.

Questions?  Comments?