Monday, January 28, 2008

25 or 50 bps?

All eyes will be on the Fed tomorrow. Although the market is expecting (demanding?) 50 bps, 25 is a real possibility since we've learned the real reason behind last Tuesday's collapse in futures was the unwinding of trades made by SocGen's rogue trader.

I've been just about all-in in my PM trading account since last Wednesday. The reason had more to do with the notable weaknesses on the mornings of last Tuesday and Wednesday than reaching my downside targets. I'll admit that I was a little scared Tuesday morning. And if someone who has a deep conviction in PMs like me felt that way, many weak hands must have folded -- which means we're cleared to take off. By my count, we should now be in the most vertiginous portion of this advance.

The biggest news last week was the mining interruptions in South Africa due to power outages. Platinum and the rest of the platinum group metals (PGMs) were the real beneficiaries of this supply disruption. A clear beneficiary is Stillwater (SWC) whose mining operations are in Montana; North American Palladium (PAL) is another. SWC jumped over 20% on the news on massive volume and broke out from a down trend. [Disclosure: I own SWC.]