Coming risk aversion Q3 - Will the USD be a haven?

That is the question and it could be said (I'll say it) that the US dollar, that usually in risk averse markets, is bought. May not happen this time around. The markets may turn risk averse into 3rd quarter 2009. Mostly on the back of companies earnings, European banking mess, global unemployment and government deficits that will make your eyes bleed. But US stocks have been stubbornly bullish, although as discussed in Getting ready for more selling. Dow and VIX show market 'sell' anticptaion, technically there is room for capitulation in stock selling if broken supports and fear cause major sell off's. No matter how much liquidity is pumped into markets via central banks, or confidence is artificiality created by central banks and governments. Fear always trumps anything else, no one wants to lose money.

Looking at a similar patten with the last two quarters of 2008 when everything went south, 2009 could emulate aspects of markets selling. With the USD in 2008 gaining strength on risk aversion. 2009 could prove the opposite (as far as last quarter US dollar strength in 2008). What might occur this time is the USD could weaken further with safe havens and defensive stocks become more attractive. Oil crashed in 2008 from it's high of 147. This time around the USD could crash with oil being bought along side with gold, and agricultural based commodities. Stocks could flatten out from last quarter highs or sell off altogether. If that was the case and it breaks all supports and heads down towards November 2008 (S&P500) and March 2009 (Dow) lows. Then a rebound trigger could occur at the end of 2009. If there is money on the sides and risk aversion takes out the rest of 2009, any money on the sides will stay in safe havens and commodities towards the end of 2009.

Refer below to US dollar index graph, note the two highs on the USD when risk aversion kicked in for stocks (S&p500 - November 2008 low): 20th November 2008 at 88.34, (Dow - March Low 2009): March 3rd 2009 at 89.50



Currently at 80.00, if dollar weakness persists due to the Federal Reserves Treasury purchases, stock selling could also pass onto US Dollar selling as the US dollar will be considered a risk asset (inflation). Thus market funds may move into oil and gold

I am bearish on silver, but bullish on gold into q3. Stocks may have life in them but defensive plays are already showing up in the markets and futures could show more puts than calls. So without getting too swept up in the recent last quarter rallies I have a buy on food, energy stocks. More so (if you are in these markets) futures as a hedge (buy on stock lows) for oil, food and utility stocks.

Inflation is here despite the ridicules assertion that it isn't, as mentioned on this blog inflation is now stretching right across on a broad scale from food, oil, council rates, insurance to child care costs and telecommunications. So an inflation based portfolio would be wise with some speculative buys. The speculative buys have been pharmaceuticals, 1. Obama's health care overall. 2. Pandemics (namely H1N1/swine flu)

*morbius glass doesn't give investment advice, trade at your own risk