Red-Hot Resources

"Luck is not chance, it’s toil; fortune’s expensive smile is earned.”

Friday, December 07, 2007

Commentary for Today

I am putting out some trades for Red Hot Resources today. Here is some of the commentary that goes along with it ...

Oil got a big boost in the wake of the mortgage plan rolled out by President Bush yesterday, in which he offered multiple measures aimed at preventing borrowers with sub-prime adjustable-rate mortgages from entering foreclosure. The agreement sets conditions under which rates on certain loans could be temporarily frozen, and is intended to prevent 1.4 million homes – worth $316 billion -- from going into foreclosure next year.

That news boosted the market. But the big run-up didn’t come until 2:30 pm, when Fed Chairman Ben Bernanke came out and voiced his support for the plan. The market took this as dollar-bearish, stock-bullish, and this gives us a plan for investing.

See, the President’s plan is voluntary – the only way it will work is if mortgage lenders go along with it. And the only way they’ll freeze teaser rates on adjustable rate mortgages is if Bernanke gives them the wink-wink, nudge-nudge that he’s not going to raise interest rates – in fact, they may believe he will cut them even more. It appears that with his statement yesterday that the plan is a “welcome step,” Bernanke is signaling the big lenders that even if inflation heats up, he’s going to keep interest rates low for years to help with a mortgage situation he sees as a crisis.

This is very bullish for commodities – particularly oil and precious metals – and bearish for the US dollar. Since oil had a big run-up yesterday, and is correcting today, we’ll wait for a bigger pullback or a breakout before buying.

The Bush mortgage rescue plan is a deal-changer. It greatly lowers the risk of a financial calamity in the short-term. I think it potentially harms the market quite a bit in the long-term.
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