Forget the UK blues you had on Monday. Don’t despair
about your pension fund value. The credit crunch is
over. Stock markets are now doing what they do… and
going up.

Certainly, that’s how it seems when you look at
yesterday’s phenomenal surge around Western stock
markets… and the continuation across Asian markets
today.

——————————
Markets across the world rally
——————————

Yesterday, the Dow Jones closed up some 400 points, the
FTSE was up 150 points and today in Asia the euphoria
continued unchecked: the Japanese Nikkei up 4.2%, Hong
Kong up 3.5% and India up 2.2%. In Latin America,
Mexico added 2.8% and Brazil 2.9%.

All of this comes on the back of yesterday’s news of
over $23 billion in write-downs. The market, in its
infinite wisdom, thinks that just because banks can
still go to the open market for funds that this credit
crunch is over somehow.

Last time we checked, foreclosures are still rising,
consumers are spending less and banks continue to write
down billions.

The huge rally, then, in banks and retailers
(Kingfisher and B&Q were among the FTSE’s leading
risers yesterday!)… in fact, in just about
anything… seems like some kind of April Fool’s joke –
especially when you consider that about the only shares
falling were mining companies.

I was talking to Robin Tracey who runs our Time Trader
straddle strategy earlier. He has is own thoughts on
this recent rally. “I think it’s just that traders had
been beaten down for too long – the pessimism was
overdone. As soon as we got a bit of “good news” from
the finance sector, the bulls took their cue and a bout
of optimism has blasted in to the market,” he told me
on the phone earlier.

——————————

—————-
Just a short squeeze… or a meaningful rally?
———————————————-

Will that optimism last, I wanted to know… asking
Robin to look into his crystal ball and give me a
definitive answer on where I should place my chips.

“Who know? Not you and certainly not me,” he replied, a
little too honestly perhaps. “This could be either a
severe bout of ‘short covering’ or it could be a
serious “upside initiation”, in other words the start
of a bigger rally. It doesn’t feel like the latter to
me, but I’m afraid we’ll have to wait and see.”

OK, Robin – so the markets could go up… or they could
go down. Thanks for that! Actually, Robin doesn’t care
too much about that. His strategy is market neutral. In
other words, he does not try to guess direction –
that’s a mug’s game in his view. People are invariably
wrong and “most of the time” markets don’t move that
much from month to month. His fascinating strategy aims
to capitalise on that.

The doors are closed on this service for this month’s
trade – but as soon as Robin’s inviting new traders to
join the May trade, I’ll let Profit Watch readers know
first. It could be your kind of thing. Keep an eye out
next week.

———————————
Lots of action in oil and gold…
———————————

Meanwhile, there’s just as much volatility over in the
commodities complex, where we’re still in the throes of
a sizeable volte face in the gold market.

Here in Profit Watch I’ve been musing for a while on
whether that thrust we saw through $1,000 dollars an
ounce would stick… or whether we’d get a decent
correction. Having a rudimentary understanding of
technical analysis, I had $750 in my mind as a possible
retracement level… a possible buying opportunity.

Well clearly we came nowhere near that… but the
market is certainly giving latecomers to the party a
reason to start thinking about jumping in… what do we
make of that?

If you’ve been reading this thing for a while, you know
me. I’m a gold bull over the longer term. I’m not
necessarily a gold bug like some of my colleagues –
Fleet Street CEO, Bill Bonner, William Rees-Mogg at The
Fleet Street Letter or Dan Denning who heads up the
Australian version of our Daily Reckoning letter. These
guys believe gold is the only true store of value in a
depression and they’ve been calling it upwards for the
last 10 years or more… and rightly so.

As inflation rages, gold shines… and that’s what
we’ve been seeing in 2007 and 2008. At its $1,030 high
of a couple of weeks ago, gold was up 23% since the
start of the year.

But I note from Ben Traynor’s Fleet Street Daily email
today that we’re seeing a decent pull back now…

————————————
Gold falls, but oil stays above $100
————————————

Gold is down to $888, he tells me in his excellent
commentary (you should sign up for that if you get the
chance, by the way – see the link at the end of this
email.) But oil has stayed above the magic $100 mark
(excepting a short spell yesterday when it poked its
nose just below for old time’s sake).

“I find it interesting that gold fell but oil didn’t,”
muses Bill Bonner. “Oil has real demand behind it,
while gold is monetary.”

“Absolutely,” agrees Garry White. “You make loads of
stuff from oil. Plus,” he adds, “there’s a real supply
crunch going on. We all seem to focus on US oil
inventories, but we should be looking at capacity in
producing nations too.”

The Gulf is experiencing a power crisis, and it’s
hitting production capacity.

“The fundamentals are in the driving seat now!” says
Garry. “And the fundamentals are tight.

“A US energy economist has a neat explanation as to why
this is happening – and it fits exactly with my view of
the world. It’s all about population growth leading to
energy shortages – and he believes it’s hitting oil-
producing nations hard.

“Writing in the Financial Times, Ohio Northern
University Energy Economist AF Alhajji, said that
Opec’s vanishing excess capacity was now keeping the
oil price above $100. He argued that Gulf States’ power
crises were now a primary driver of the oil price.

—————————————
Gulf power crisis is real – and growing
—————————————

“Alhajji argued that when considering total oil stocks,
you must include inventories in industrial nations PLUS
excess capacity in producer states. We all seem to
focus on US oil inventories – be we should be looking
at capacity in producing nations too.

“Despite rising inventories; vanishing capacity in Gulf
nations makes total global oil stocks so small that
this has been the main driver keeping the oil price
above $100, he argued.

“So, based on this analysis, when we are considering
global oil stocks, oil EXPORTS from these countries are
the most important factor – NOT total oil production.

“Rising living standards, soaring populations and
urbanisation is increasing demand in oil-rich nations.
They are using their own oil to supply their soaring
energy needs. This would also explain why Opec has been
reluctant to increase production… it simply can’t
because of its own power shortages.

“In March, the Middle East Economic Digest warned of an
imminent power and water crisis across the Gulf. It
said there was a serious supply and demand imbalance
caused by a lack of infrastructure investment earlier
in the decade.

“The GCC is currently building a Gulf power grid that
will connect the six member states, paving the way for
a regional electricity market. The grid will not come
online until 2009, however.

“So, a temporary change in the dollar’s fortunes has
revealed that fundamentals are taking over as the main
driver.”

Garry’s advice? Buy commodities – and oil in
particular. If you’re looking for his specific profit
plays, then just get on board his Smart Commodities
letter.

To find out why oil is one of Garry’s Power Trends – 5
trends that could see smart investors make an absolute
killing in the months ahead, read here:

http://click.fspeletters.com/t/15025/1632470/156272/0/

Past performance is not a reliable indicator of future
results. Your capital is at risk when you invest in shares,
never risk more than you can afford to lose. Please seek
independent financial advice if necessary.

That’s all for today…

Until Friday…

Best regards,

Frank Hemsley
Profit Watch

P.S. Remember to get your name on to the list for Ben
Traynor’s Fleet Street Daily e-letter (it’s free!) Just
go here for details:

http://signup.fspinvest.co.uk/LF/fsd.html?newsourcecode2=XFSDD304