Macro Tsimmis

intelligently hedged investment

BUY Ultrashort Oil & Gas ETF (DUG)

Posted by intelledgement on Wed, 14 May 08

OK, this is against the macro. Medium term, we expect the US consumer economy and the dollar to collapse and precious metals to be the place to ride out the economic storm, and long term with the Asian buildout (after a pause to adjust to the demise of American demand) continuing to drive demand, for commodity prices in general and energy in particular to head north.

At this point, however, the price of oil appears to be way ahead of itself. Demand is moderating (and will moderate more as the US consumer pulls back). While the pace of new supply coming online is slowing, we are not nearly out of oil yet. In the short term, the Fed is not likely to cut interest rates any further—and the ECB is likely to—which should result in a rally in the price of the dollar.

Therefore, we think that $125 oil is unsustainable in the short term, and are looking to ride DUG here for a reverse spike to near the $100 mark, and perhaps below it.

Proshares’ UltraShort Oil & Gas ETF seeks daily investment results, before fees and expenses, that correspond to twice (200%) the inverse (opposite) of the daily performance of the Dow Jones U.S. Oil & Gas IndexSM.

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