I think Energies and Metals have a chance to turn up here.

I currently don’t have the asset base to diversify on a large scale.  I would like to get long Aussie, Kiwi, Euro, and Swissie right here if I could, but I choose not to overextend myself.

The grain complex is also looking good with Corn, Soybeans, Soy Oil, and Soy Meal.  Minneapolis Wheat looks the strongest out of the wheat complex.

In the metal complex, Palladium still looks strong.

RBOB Gasoline has the best setup in energies.

I’m already long Malaysian and Indian stocks, as well as Gold and Malaysian Palm Oil.

The G-20 meeting this weekend announced that they were going to stimulate to kingdom come.  The communique ironically mentioned that the group will work to address excessive commodity price volatility and to achieve high stable growth which will require orderly rebalancing of global demand.

In the short-term, this might mean a shift away from stimulative growth in China, Canada, and Australia.  Also, any fast runups in commodities might be met with heavy selling or even government intervention.  This will create even more volatility in the long-term.

I am getting multiple liquidation signals in Asian stock markets, which implies more market risk.  The Hang Seng, India, and China are running out of gas.

Historically, there is only about a 10% chance that these markets will go up, 30% they will go sideways, and 60% they will go down.  This is the scanning range I have over the next 3-6 months.

A lot of stocks here are having failure patterns which is a very bad sign.  NASDAQ is having the most problems.

If stock markets worldwide keep moving up, I rather own physical commodities than stocks.

Central Banks are desperately adding liquidity to the financial system to stop asset deflation. The real economic numbers are still staggering: real GDP is minus 3%, unadjusted M3 money supply growth is above 10% y/y, CPI-U is running at about 8% inflation per annum, and the Bureau of Labor Statistics reported unemployment is still accelerating to the upside.

This economic dilemma continues to produce a tremendous amount of volatility in both the stock and bond markets. Global bond prices are overextended, and an extremely high probability of a severe correction exists. Stocks have already tanked severely and might bottom in the short-term, but the reversal might be choppy because the economic fundamentals are still deteriorating in the US. Stock markets in some Asian countries might have a steadier short-term rally because the economic numbers are slightly better. The slowdown has hit commodities (the Goldman Sachs Commodity and CRB indices are down 50%+ from the high), but the rapidly expanding money supply will put a floor on prices.

Commodities will rise again, as the Federal Reserve has abandoned their inflation-fighting policies to fight the recession, and they will fix neither problem. The economic landscape of the United States has been permanently altered with corporate bailouts, the TARP, TAF, and TSLF facilities, and the massive expansion of the Federal Reserve’s balance sheet. This structural change reduces the efficacy of future monetary policy interest rate changes, and they will have tremendous difficulty controlling inflation when it comes back.

Of course now Euro/Swiss is breaking down heavily after I covered.  Volatility is picking up everywhere.

Most major stock markets are down 3-5%+ overnight.

This is a very very dangerous time .. and potentially a great opportunity.  I stay very patient.

Short Cotton.

Out Gold, Copper.

I scratched out of gold, and it seems like there is a lot of liquidation into this short bounce.  I have a feeling stocks will have a short rally, and commodities will still keep tanking.  Even though cotton is a little whippy, I must stay short.  The Fed kept interest rates tight, and that is going to keep the US Dollar stronger.  Liquidity is tight, and that is how they are going to fight inflation in the short-term.

The goal is to push the US into a recession.  Manufacturing is going to get hit really hard.

Out China H-shares, Nasdaq 100 Index, Taiwan Stock Index, 30-year US Treasuries, Japan Government Bond.

Long Hang Seng (very short-term trade).

I made a small profit on Nazz, but I took a larger loss on the US Treasuries and the JGB: I’m very upset about this.

Fannie and Freddie are the talk of the town, but no one knows for sure how it’s going to work out.  The underpinnings of the market seems to be a bit weak: new highs/new lows, futures premium on the S&P 500, etc.

If there is no follow-through soon, the market is going to head south very hard.

Long 30-year US Treasuries.

In and out Sugar, Corn, Soybean Oil, Canola, Gold, Hang Seng Stock Index.

I made a small profit in the Australian bond markets, and I scratched out in commodities. I took a midsize loss in the Hang Seng index, but that’s just the way it is. These markets are whipsawing, and it’s really tough to put on trades.

I have a feeling that something big is going to happen soon, but I don’t know why. I mentioned on August 11 that a big hedge fund might be in trouble, and it turned out to be Ospraie. Losing more than a yard (1 billion) in a very short period when you have 3 billion is not my idea of managing risk.

I definitely would NOT go long in any stock market worldwide.

Long Canadian Banker’s Acceptances.

Short Palladium.

Out 3-Year Aussie Bond, Canadian 10-Year Bond.

Foreign I-rates are breaking out, but it is very slow and choppy.

Russia invading Georgia is a huge problem and a potential watershed. Crude oil and gold are ignoring the news. Eastern bloc currencies are tanking, and so is the Russian Ruble. This is part of a much bigger puzzle that is playing itself out in FX and commodity land. I have a feeling that another big bank and hedge fund is ready to go under soon.