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Las
Vegas Sands Off To a Wild Start |
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Never
let it be said the investing game isn't interesting. Our Las
Vegas Sands (NYSE: LVS) trade got off to a wild start, plunging
7.2% the on same Wednesday morning we sent that edition of the newsletter.
By the next day all that selling was erased with a gain of 10.7%, actually
making that dip beneficial for anybody who stepped in. As it stands now,
any of our readers who got in at the opening price of $55.14 on Wednesday
(your first opportunity to act) are now be up 2.1%.
More importantly,
Las Vegas Sands is still trending higher...the whole reason we wanted
to get involved in the first place.
 We're
not going to rehash the entire rationale from Tuesday's
newsletter; you might want to review it on your own though, if you
missed it. We can just sum it up like this... casinos tend to be great
investments right about when they look like terrible investments.
They're survivors, and often able to shrug
off the effect of a recession - if we're actually in one anymore.
Being willing to be pro-active rather than re-active has made a significant
difference in the kinds of results you could have achieved with a casino
holding.
It's still a
little too soon to be passing judgment in the trade-to-date...it's only
been three days. As more time passes though, we'll update you about
any critical changes for the chart or the company.
If you have
any thoughts or comments in the meantime, we've
posted a blog entry for LVS. You can leave us a message there.
That being said,
this past week ended up giving us some more important data about the economy.
Specifically, all the things that have been festering for oil, the dollar,
and inflation are really starting to surface. We'll devote most of
today's edition to that subject.
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Economy's
Rockin' and Rollin' |
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The U.S. dollar
is at multi-month highs, and oil is at multi-month lows. Awesome. On the
other hand, inflation is at multi-year highs. That stinks, or does it?
There's no question
cheaper oil and a stronger dollar have fueled the recent rally. The question
is, is there any gas left in the tank?
Just a quick
overview of the underlying dynamic....
Since oil is
priced in U.S. dollars, a stronger dollar effectively makes oil cheaper.
The strength of the dollar, however, is largely dictated by the prevailing
interest rates here in the United States. But wait a second ...interest
rates haven't changed in months, have they? How can the dollar be
stronger?
 Our
answer is ...speculation. The dollar's recovery pretty much started
on August 8th when the U.S. Dollar Index broke past a key resistance level
at 74.30. A few days later - on the 14th - we learned annual inflation
in the U.S. is now at a whopping 5.6%....the highest level since 1991.
Of course, the
Federal Reserve can't be happy about that. Though they may have done
nothing yet, that level certainly puts some pressure on them to do
one
of the few things they can do to curb inflation, which is raise rates.
The reason for their hesitation is clear...even modestly higher rates
could drive a final nail into the economy's coffin. Still, we're getting
to the point where they may have to choose the lesser of two evils. (We'll
counter that thesis in a moment.)
It still doesn't
explain how the dollar recovered though. Did somebody see this inflation
coming? Our answer is, yes, somebody probably did recognize
it was on the way. Speculating the Fed may be forced to react with higher
rates, these same speculators went ahead and bought the dollar, driving
it much higher.
Here's the irony
- their net purchase of U.S. dollar, which drove the dollar's value
higher, is largely what drove the price of oil lower. If you read deeper
into what drove inflation last month, it was expensive energy. Oil
peaked at $146 in July...the same month for which we just heard the lofty
inflation rate.
 See
the problem? With oil now at $112 per barrel (thanks to a stronger
dollar), we're not likely to see more or even the same inflation
pressure for August. If anything, August's energy costs should be down
significantly from July's. The Fed may not need to do anything, since inflation
is being contained on its own.
Of course, this
is only a relatively short-term view. Once everybody who'd been buying
the dollar realizes the Fed doesn't have to raise rates right away, they
may well start selling the dollar again. The result? Oil could start
to edge higher again. As long as neither of those reversals are hyper-volatile
though, the stock market could manage to make a soft landing...and perhaps
even keep powering higher.
On the other
hand, we'd be kidding you and ourselves if we said the average investor
isn't still terrified of high oil prices. Even a small rise in crude's
prices could start a bearish avalanche for stocks. So, caution is absolutely
required.
With all of
this as a backdrop, we want to point out the one thing about oil's chart
that should concern you the most.
If crude oil's
pullback had stalled anywhere else besides $110.31 on Friday, we'd
probably think nothing of it. However, that number is pretty significant
for two reasons.
 The
first
reason is, it's a key Fibonacci retracement level. That price represents
a 61.8% retracement of the run-up from a key base around $87 to the peak
at $146. As such, it's considered a high-potential reversal point. It may
not reverse on Monday, or exactly at $110. But, we're at a point
where the natural, underlying market forces start to play a role.
The second
reason
we suspect oil's at a potential support line...this area has been support
before. It's where the uptrend was tested in early May. After getting
pushed all the way back to $108, the oil bulls struck back even harder.
They may have drawn the line in the sand here again.
Factor in an
overbought dollar - and a lot of potentially disappointed owners of
the dollar - we think oil's got a pretty good shot of actually moving
higher again, at least for a little while.
Stay tuned to
the blog;
we'll try and update all of these charts as often as needed.
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Updated: 3:10 pm PST (23:10 GMT), November 20, 2008
