I just don't buy it. I have been listening to Mr. Jean-Claude Trichet, El Presidente of the European Central Bank (ECB) speak for a long time. I fully understand that the ECB has a single mandate, which is to fend off inflation.
The difference between the ECB and the Federal Reserve Bank here in the U.S. is that the Fed wears many hats. It is in charge of that same fight with the evil inflation, but it is also charged with supplying the proper stimulus to insure economic growth.
Generally, with growth comes employment. So, as we here in the U.S. have had the benefit of aggressive stimulus in the form of easier and easier monetary policy, the ECB has had to stand pat.
Because we were in an easing cycle, one of the collateral risks was heating up....inflation in the form of higher energy and food prices. We realized that the risks were weighed and that falling into a recession would be more harmful than falling into a $4 gallon of gasoline.. So, the Fed cut... and cut,... and cut again.
Another one of the sidebars to monetary easing is that the currency running the economy under easing pressure would find value elsewhere. That's where the rub was.
As we lowered rates and the rest of the developed (and not so developed) world held steady, traders turned to those foreign currencies for returns. Hence, the dollar slid and the Euro, Loonie, Aussie, Yen, Real and most other currencies gained.
Fast forward to this week. Our friend Mr. Trichet reiterated the long-standing vigil against inflation. Well, did anyone notice that house prices reported in the U.K. this week showed further signs of weakening. They fell at an alarming 5% rate last month.
With the European Union trailing the U.S. in economic fate, I expect that they will start to really feel the slowdown in economic activity acutely. They haven't moved yet, sitting at 5% interest rates from the ECB.
I think there is an interesting trade lining up here. With the U.S. providing monetary stimulus and the fiscal stimulus ($136 billion to U.S. taxpayers), and the ECB having to stand by Mr. Trichet's hard line against inflation, I think the Fed holds rates steady for now. This will certainly provide a much needed boost of confidence to the trading community looking for any positive signs of a buying opportunity.
Logically, the dollar will find its long estranged footing. This dollar bid in place sets the stage for an interesting trade. I am a firm believer that this will be the green light to the financial sector and a currency trade tail.
It is well published that I have been betting against the financials and with commodities for the better part of two years (see a video of a bet I made with
I think the tide has changed. It is time for the financials to play catch-up. They have been the beaten down sector for a long time. The interesting thing is that all the while they were taking write downs for bad bets in housing, the cheap money borrowed from the Fed and loaned out to the world to buy oil and infrastructure has firmed up some balance sheets.
I am long
. The Citi position is part of my core portfolio and has been there for many years. Penson is in my high-risk portfolio and was initiated in January. It is just this week back in the profitable column after spending every single day since I initiated it in the red.
I will be buying the
Financial Select Sector SPDR
as soon as I am allowed to (there are restrictions in trading after writing about a stock or ETF). The XLF is a great way to get a cross-section of financial institutions. Its holdings include some real great stocks and some dogs of late:
Bank Of America
and then there are Citi,
. The XLF is down 14% so far this year and almost 34% in a year of miserable fundamentals for the sector. I do feel that the difference in money rates between here and everywhere else will provide a dollar bid -- just what the financials need and at the right time.
I will buy XLF at $25 area and use a $23.50 stop loss. This is trade with a short stop and might just run if things line up the way I am seeing them. If not, we are out below $23.50 and live to trade another day.
I will discuss the currency tail trade in another column. Don't worry, this trade is lining up and will be there in a few days. I will highlight it soon, I just want more data before I jump in.
Somebody call Cramer, I am ready to buy the financials and sell oil and gold!! I bet he might agree with me. In fact, I am calling him now!
"Trade with your head , not over it"
At time of publication, Bolling was long C and PNSN, although holdings can change at any time.
Eric Bolling is a host on the new Fox Business Network. Bolling was one of the developers and original panelists (nicknamed "The Admiral") on CNBC's "Fast Money."
Bolling is an active trader specializing in commodities, resource trades and ETFs.
Bolling is a member of several exchanges including The New York Mercantile Exchange (NMX), The Intercontinental Exchange (ICE) and The Commodity Exchange of New York.
After spending 5 years on the Board of Directors at the NYMEX, he became a strategic adviser to that Board of Directors where he assisted in bringing the company (NMX) public. He has been included in Trader Monthly Top 100 in 2005 and 2006. Bolling was the recipient of the Maybach Man of the Year Award in 2007 for his contribution of philanthropy and willingness to de-mystify investing to Main Street.
Bolling graduated from Rollins College in Winter Park, Florida and was awarded a fellowship to Duke University. Bolling was an accomplished baseball player. He was drafted by the Pittsburgh Pirates where he played before his career was cut short due to injuries. He honors his baseball past by sporting the NYMEX trader badge, R.B.I.