GOLDILOCK'S IS BEAUTIFUL

Have you ever seen a more PERFECT TIME to invest? Isn't Goldilocks beautiful? Is now the time to borrow a pile of money and invest in the stock market? Can you just throw a dart at a chart and buy the stock that it hits? This is pure insanity in the Mainstream Media. They would have you believe that everything is OK--or better than OK.

Did anyone notice that the price of copper is headed up at a rapid pace while the Bank of Japan is arranging for more short term financing, while the Dubai credit woes are fresh off the press? Does that bother anyone on the street other than me? My portfolio is telling me that I am the lone dumbass on the street.

I ask you the following:

1) If this is a great time to invest in US equities, why didn't we crank up the printing presses YEARS AGO? LOOK AT HOW PROSPEROUS WE COULD HAVE BEEN IF WE HAD BEEN PRINTING LONGER.

2) If the correlation between the fall of the dollar and the rise of the domestic equity markets can continue forever, how do I go about getting adopted by someone from Zimbabwe? There must be some rich jokers there.

3) If the smart money is "all in" equities, why is gold soaring and the bond market not getting smacked?

4) Did the banks really need all of the TARP money if they are repaying it so quickly? If they didn't really need it OR if things are so great and their balance sheets are totally repaired WHY ISN'T INFLATION NOT AN IMMEDIATE CONCERN?

5) If all of this liquidity is really so great over the long haul, wouldn't SOCIALISM BE MORE PROSPEROUS THAN CAPITALISM.

I argue that the phenomenons that we are seeing in the markets are PURELY SHORT TERM AND THE MEDICINE WE HAVE TO TAKE WHEN THEY CORRECT IS GOING TO BE BITTER.

Where's Warren?

The last time that it really looked like the averages were going to roll over, Warren Buffett stepped up to the plate with his purchase of Burlington Northern and injected confidence that kept the rally in place. Now with the crisis in Dubai will the markets roll over or will we have some confidence booster that sends the rally higher? Before we answer that question, lets first analyze Buffett's bet.

Buffett said he was betting on America with this play. Now before I go into this analysis, let me state that I love my country and my analysis has only to do with what I SEE happening not what I WANT to happen. Was Buffett betting on the return of our economy or was he getting dual bang for his buck, by betting on coal and propping up other investments with his rally cry? I am of the opinion that Warren's bet was more a play on the fall of the dollar than anything else. Was he betting that coal was the only reliable source of energy that we will be able to afford? Was he betting that Congress is going to continue to push for protectionist measures and that coal would be a great play on those policies? Does Buffett understand that the American consumer still wants to buy, but the American voter is becoming more slanted toward entitlements? Does he know that the best place for a borrow and spend economy to get its energy will be internally? What do rails haul? A LOT OF THEIR REVENUE COMES FROM TRANSPORTING THE VERY THING THAT FIRES MANY OF THEIR ENGINES===COAL. So you get paid to haul what becomes not only the cheapest source of energy but perhaps one of two only affordable sources---with natural gas being the other.

Now one might argue that if my thesis is correct, why Buffett didn't bet on natural gas. It is cleaner, and we all know that "greener" is better, right. To that argument, I would question where the All-American bet would have been. There was no single investment that would have been as a diverse bet as the rails in the natural gas space. The old saying that "transports lead us out of a recession" may very well be seen again. I think right now after all the hype, I will let those smarter than myself chase the rails. As for Buffett's bet, I think he may have made a good one--albeit for different reasons that were hyped by the mainstream media.

I personally think that I may take a look at the natural gas transporters such as MMP as a way to play this economic environment. I clarify that statement by saying I am going to be very watchful as to the overall direction of the market before I commit any new "bullish" capital. I am currently holding FAZ, SDS, FCX. As always that is subject to change rapidly.

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View the following SLIDESHOW FROM CNBC ON THE WORLDS LARGEST DEBTOR NATIONS

Given the other nations that are far ahead of us on a percentage of GDP basis, is the debasement of the dollar overdone?

Is the fall of the dollar in anticipation that this government will push us farther up the list?

Given the other countries on the list, is a major correction for the EUR/USD eminent?

Has the last 15% rally in the major averages been attributable to the fall of the dollar and if so, how far will the correction in the averages be if the dollar rallies significantly?

Will Santa Claus deliver one of the greatest December declines in history in 2009?

LET US HEAR YOUR THOUGHTS!

We will have more tonight!!!!

Futures Heading Higher

All I can thing of right now is the saying "The Markets can stay irrational longer than many investors can stay solvent" We are shrugging off massive debt, massive trade deficits and look to run even higher. The dollar continues to fall and the consensus seems to be that the entire world will use the lower dollar to bet the U.S. stock market. I am afraid that we are missing the boat and are in for some downside pressure. I just wonder how long I can stay solvent in the face of this "everything is wonderful" scenario.

No one seems to be worried that the farther the dollar falls, the more expensive our debt will really become (as foreign investors will require higher rates). Of course according to the markets action lately, having the Federal Reserve monetize the debt has worked really well---but we all know that is not healthy. Right now it seems like our economy is smoking cigarettes, drinking heavily, not exercising, eating pure fat, and GETTING GREAT CHECKUPS FROM DR MARKET. GO FIGURE

I do understand that the appetite for mergers is good for the markets and we have seen signs of that appetite being revived. Have you asked yourself the questions "where would we be had Buffett not decided to buy Burlington"? It seemed to me that the markets were headed down technically until the Buffett/Burlington announcement.

How can long can the Federal Reserve maintain that inflation is at bay with oil, gold, copper, corn headed much higher? We are drowning in liquidity and are choosing to look at it like "Goldilocks". The Fed should come out IMMEDIATELY AND ANNOUNCE A HALF POINT EMERGENCY RATE INCREASE. We need to curb this liquidity and curb it now. Such an announcement would strengthen the dollar and put us mentally in a much better position to combat inflation. If you read my blog about a year ago, I was arguing that the toughest thing to do would be to reign in the monetary supply while the economy was still struggling. If we don't do it now, we are headed for some massive pain on the inflation front and we all know that it is very difficult to deal with once it begins to spiral out of control. Bernanke and the Fed must believe that they can put the brakes on liquidity through open market operations at a rate faster than ever before. I don't see how, but they must have that confidence.

It shall be interesting to see where we head from here, but the futures are telling me that I will continue to be wrong at least for today.

ALL ABOUT THE DOLLAR?

Many keep arguing that the main reason for the appreciation equities is the falling dollar. How long can that continue? Treasury Secretary Geithner said that we are committed to a strong dollar. Can it be achieved? We all know that we need the dollar to be strong but can it recover?

The futures are higher this morning on the back of the statement that the Euro Zone is officially out of the recession. Due to exports, they grew in the 3rd quarter. So is it all over? Are we back in the bull market for good? First, I don't put much stock in these numbers because of the massive worldwide stimulus. If it was this easy to come out of a recession, why don't we just print the heck out of money all of the time?

Lets take a look at what is driving the currencies. The dollar is falling because of the debt and the very low interest rates in the U.S. So if other countries grow faster and raise rates, will the dollar continue to fall? It could. So we just need to get Ben Bernanke to go ahead and raise rates now? Can we or would that send the economy back into a tailspin and prompt more stimulus and increase the deficit?

My simple point is this---I don't think that we can see the dollar's fall as good for much longer. The steps necessary to strengthen the dollar will bring more pain for our economy. SO ALL OF THE CURRENT EUPHORIA IS NOT WARRANTED AND WE WILL SEE SOME DOWNWARD PRESSURE ON STOCKS.

I have been wrong thus far, but still believe a retest of the March 2009 lows is not out of the question.

The Fall of the Dollar

Those of you that have followed my blog for a while know that I will admit when I am wrong. I have missed on the recent strength of the U.S. Markets. I believe that it has a lot to do with the constant decline of the dollar. I will have short posts over the next few days due to a death in the family.

Watch this vid on the dollar and check back soon!!!

House of Cards 2.0

Did this market seem resilient this week or what? I must admit that I was surprised, but the lack of volume on Friday made me think I had forgotten about a holiday. At the risk of sounding redundant, lets go back and look at the GDP report and the FOMC statement. Is the FOMC in a corner? Was GDP really as good as was reported? If so, is it sustainable? Further, can the number be manipulated? How far can the GDP be moved by a small change in the deflator?


I submit that the GDP number was grossly overstated AND that the FOMC has painted itself into a corner. Now I am just a simple man, but didn't it sound like the FOMC said the economy is growing again, but inflation is off of the radar screen and we have no plans to raise rates in the near future? That was my interpretation. Isn't that like the weatherman who forecasts "Tomorrow will be clear to partly cloudy with a chance of rain"? If the GDP number is so improved, why would we not pull back on the debt purchased by the Fed? Wouldn't it be necessary to start moving toward neutral with money being injected into the economy? Aren't we monetizing our own debt when the Fed makes purchases now?

Don't most of us learn in Economics 101 that you can't create something out of thin air? Let me ask how, with unemployment over 10% and the worked hours still at the lows, we are expecting the consumer to rebound or even stabilize. Oh, I admit that it is great to hear earnings reports that "beat", but weren't expectations so low that beats should have been baked into the cake. And there is little correlation at this point between better than expected earnings. As a matter of fact, I would argue that more companies had better than expected earnings than had better than expected SALES. Better than expected earnings often come as a result of LABOR REDUCTIONS that outpace a decline in sales. But next could come the drop in sales as the consumer feels the heat of the extended unemployment.

The FOMC would have you believe that everything is fine, we have been through this before and have the road map to guarantee recover. We most certainly have NOT been here before! Never before have we seen our government take on this much debt---even to the point that we monetize it ourselves at an unbelievable pace. Two years ago, we lovingly had the term "Merger Monday" as things were great and deals went down on the weekend. Now we have shifted gears and have FAILURE FRIDAY, as we seem to have more financial institutions close every week.

How many of us expect the MAINSTREAM MEDIA to tell us the full story? Not this guy. Remember they make their money through advertisements. Their employees understand simple economics---consumer panic equals less advertising dollars which could mean the elimination of their jobs. So the MM will go out a find a number of so called "experts" to parade into our homes and tell us that "unemployment is a lagging indicator". That everything is fine and the natural progression from increased GDP is to a longer workweek and job creation. NOT THIS TIME I SAY. I wish it were that simple.

The FOMC says rates will remain low for an extended period of time. Do they have that much control? Anyone notice that the dollar has been falling? Can rates stay low if the dollar continues to fall? Doesn't a falling dollar mean inflation? So is the FOMC arguing that THIS TIME we will fight inflation with low interest rates? Is the Fed planning to quick injecting money into the system to combat inflation? Not according to their most recent statement. Have you heard the mainstream media analyze this predicament over the past few weeks or days? Should FOMC Chairman have had a "chat" with Speaker Pelosi before she passed nationalization of 18% of our economy equating to MORE FEDERAL DOLLARS being injected into the system. Is there anyone out there that REALLY believes that this healthcare bill will REDUCE THE DEFICIT? So if it increases the deficit and the FOMC is not worried about inflation, are we fighting inflation with higher deficits? If you could spend yourself to prosperity wouldn't everyone be rich?

How can we expect the creation of this nanny state to improve our economic situation. If we were really improving our economy, as the recent reports would have you believe, wouldn't productivity be increasing? Is there anyone out there that believes this nanny state will IMPROVE PRODUCTIVITY? IT WILL SLAM PRODUCTIVITY. The only shortage we will not have is people wanting something for nothing. When fewer make, yet more consume, doesn't the family's productivity decline. YOU BET.

We just thought the subprime mess was a house of cards. Remember when we first hear the term "subprime crisis" how many downplayed the effects. Remember all of those brokers and analysts that appeared on MM shows and ran through the drill that the company would be worth X even if you subtracted all subprime investments (then they assured you how "all would not be lost"). So are you willing to listen to that same endless parade of participants that told you it wasn't that bad===all over again? I am not. Are these not the same people that are out there trying to convince you that the housing market is rebounding. If it is rebounding why is the government extending the home buying credits? Wouldn't that be stupid in the face of inflation? Wait, are you telling me that we are combating inflation with homebuyer tax credits?

Subprime and the investment banking house of cards was JUST THE FIRST PART OF THIS CRISIS. Now we are faced with unemployment, continued real esate decline---both commercial and residential (with the major effects from the commercial downturn on the horizon). Instead of letting the free markets work like we did for the first couple hundred years of our existence, we have decided that we can't have normal corrections and must "intervene". You can't mess with free markets and when you "intervene" you only cause bubbles that WILL BURST IN THE FUTURE. The scary thing is that this time bubbles may not feel like bubbles. This time the bubbles that we are creating may feel like recession. And when they burst we may well get the longest depression in history. Believe me, the Greenspan era was dominated by bubbles and when subprime hit many months back many analyst said we had to quit living in "excesses". What will be the new definition of "excesses" Last time it was designer clothes, luxury vehicles, and other amenities. This time will it be household electricity, clean water, and routine medications? If we continue down this path it well could be.

I am interested to see how the futures traders view the bill that was passed last night. I think tomorrow could be a 5% or more down day for the markets, but we will reserve judgement until we see how the futures traders and those "across the pond" decide to open things in a few hours. For now, I am very happy that I entered the weekend net short!!!

SOCIALISM, FASCISM OR JUST TOO MUCH REGULATION?

BREAKING NEWS===HOUSE PASSES HEALTHCARE BILL. 1929 MAY BE MILD COMPARED TO WHAT WE ARE ABOUT TO FACE. THE BELOW ARTICLE WAS WRITTEN THIS MORNING BEFORE THE PASSASGE OF THE HORRIFIC BILL.

MAKE YOUR COMMENTS BELOW===WE WILL NEVER RELEASE YOUR EMAIL ADDRESS

I have written several articles about the recent move toward what I referred to as socialism only to have some "expert" come back and give me the technical definition of socialism, fascism, or some other "ism". Now truth be known I am an investor and could care less about the technical definitions. I am simply trying to make money in the markets, and many critics stop by to inject their political views.

Regardless of what you would like to term it, our government is increasing regulations in many industries and that is never good for the long term health of the markets. Now before you rush to send me a heated email saying how regulation could have prevented the banking crisis last year---keep reading. Consider how regulation is generally a "pendulum" that swings too far. The Community Reinvestment Act was partly at fault for the banking crisis last year. ANYTIME Government mandates that private business make loans to certain individuals it is a recipe for disaster.

The current healthcare debate from a financial perspective is many, many times worse for our economy. This bill could truly bankrupt our country. Six years ago, as the CEO of a company with over 250 employees I was faced with increasing cost of employee health insurance. Rates for my company had jumped double digits in the previous two years and I was very concerned. In exploring every option, I received advice from an expert to increase my deductible and copays on prescription medications modestly. Our plan structure before had no deductible and copays for medications of $5, $10, and $20 for a 30 day supply. Simply by adding a $150 deductible (very reasonable as the average hourly wage at our firm was around $18) we found that utilization was reduced tremendously. Why? Because at such low rates consumers have very little "personal responsibility" in the consumption decision. Did such a deductible deny anyone life-saving medication? NO WAY!

So consider the quagmire that any public option will create for the economy. If the government does not limit consumption, you can be GUARANTEED that they have underestimated utilization in the cost of the bill. If they do limit consumption THEY ARE TAKING YET ANOTHER STEP IN LIMITING FREEDOM. Now again, I know all of the counter arguments. Many will argue that private insurance companies are making life or death decisions when they make payment determinations and are in fact limiting freedoms now. But consider this, remember several years ago when HMO's were going to be the greatest money saving instrument in the healthcare arena. The basis of the HMO concept was to have the primary care physician "quarterback" the patients care by authorizing visits to specialists. HMO rates were much more favorable than traditional rates for the end consumer. What happened? Many consumers decided they wanted to pay more for traditional care and now some HMOs exist, but they do not dominate the marketplace. That is the beauty of the free market system, consumers get what they are willing to pay for.

So what happens if the government option offers lower copays and rates than private insurance? Another government monopoly. Oh it sounds great to have this fine plan available to everyone. And when the competition is gone what will happen to the government plan? It will either bankrupt the government or be able to quickly take action to LIMIT CONSUMPTION. EITHER WILL BE AWFUL IF NOT FATAL TO OUR ECONOMY---NOT TO MENTION THE PERSONAL FREEDOMS THAT OUR COUNTRY WAS FOUNDED UPON.

So I am the one sounding political you say? I am analyzing my next move in the market if this legislation passes this weekend. Will it end the rally, or will it cause the rally to ignite because of concerns over the weak dollar? GIVE US YOUR THOUGHTS IN THE COMMENTS SECTION!!!!!!!!


I submit that this rally began as a bear market rally and has extended of late as the weak dollar has made equities cheaper abroad. Yes it has made the earnings of our companies abroad much more valuable, but that can't last forever. While it will be a topic for a more detailed post---there is a point of diminishing return with a cheaper currency and believe me this "honeymoon phase" that we are in with the weaker dollar will come to a screeching halt soon.

Yes GDP technically grew and consumer confidence is up. Many will argue that when GDP begins to grow it signals that things are better and unemployment rates are naturally a laggard---so not to worry. But the pillar of that thesis HAS TO BE THAT GDP GROWS FAST ENOUGH TO CREATE MEANINGFUL, SUSTAINABLE JOBS. We have been propped up by the falling dollar, massive government stimulus (cash for clunkers, housing tax credits), ridiculous bailouts that have all but altered the safety of our system know as contract law. You tell me, how many things mentioned are realistically still in the governments arsenal if they need to be repeated? What will happen to the dollar if we come back to the GIMME TABLE AND START OVER WITH THE BAILOUTS AND HANDOUTS? The answer lies in the recent dollar movement DOWNWARD. Downward enough where we are guaranteed to hit the point of diminishing return. The point where inflation hits, jobs produce much less disposable income AND ARE HARDER TO CREATE.

Is it 1929 all over again? Honestly, I despise comparisons of that nature. They are tough to substantiate. What I do know is that we are in a very difficult spot and while many positively refer to this healthcare legislation as "historic", I am afraid that its economic impact on our future generations will be more accurately termed as "bankrupt". I am certainly not advocating wildly shorting everything, as there are many sectors that will benefit over the short run if this legislation passes. I do however think that we are going to see many volatile trading days ahead and while many of my peers are hanging in with a long bias, I have a short bias and am patiently waiting for those bets to pay off.

Crisis Over===OR JUST BEGINNING

THE MONEY MULTIPLIER CONTINUES TO MAKE NEW LOWS. Take a look at the chart below.




Let me tell you what puzzles me about this chart. We have had unprecedented government borrowing and stimulus, yet the money multiplier is as Dennis Gartman would say is "Moving from the upper left to the lower right" Wouldn't conventional wisdom tell us that for the economy to get going again the money multiplier would have to increase? The shaded bars depict the recessions we have seen during the given time period. Note that as we came out of the recession period the multiplier stabilized, but never really seemed to assume a bullish pattern. Yet didn't the economy resume bullish activity?

So the question is how did the economy begin churning again with the money multiplier stagnant.

What role did credit play with respect to the money multiplier? We know that the U.S. consumer relied heavily on credit during the time period. But wouldn't overly accessible credit have increased the money multiplier?

Would the dovish monetary policy of the Greenspan era have had any impact on the multiplier? Many would argue that the dovish policy would have increased the money multiplier--but did it? So if Greenspan was truly creating a "bubble" as many have argued then wouldn't the multiplier have increased?

Take a look at the steep drop in the multiplier recently. That is the point that many pundits, including many that appeared on our show argued that the credit was destroyed and deflation set in. I believe that assessment is right, but according to the experts we have fixed the financial system. So the money multiplier should be increasing? Right? But it is not.

Many would argue that this time is no different---we came out of recessions with no increase in the money supply before and we will do it again. I DISAGREE!!!! There are those who would argue that we have always used debt and that we are intelligently utilizing debt over the short run. I DISAGREE!!!! Why is this time different you ask? Let me make this point. Companies use debt because they believe that they can earn a greater return on the debt than they will have to pay. It is that simple. So why would the government borrow money? To get the economy going again? It is that simple. BUT THE MONEY MULTIPLIER IS NOW IN NEGATIVE TERRITORY. So what happens if a company borrows money--lots of it---for say 6% and then earns a NEGATIVE RETURN? They go bankrupt. And that is exactly where we are headed with our entire economy if we don't focus on being PRODUCTIVE. There is no free lunch and you can't get a multiplier effect on giveaways because it has to be paid for. It is not just a zero sum game where one pays and one receives. The giveaways are being financed and the ones paying are paying for the gift and the interest.

More inefficient government dollars will NOT get the system going again. Many have argued that we cannot see stagflation for a sustained period of time. I will in a coming post show why I think that we can. I will give you the fact that the markets looked like they did not seem to want to go lower today.

BUT IN THE LONG RUN, OUR LACK OF PRODUCTIVITY WILL SEND THE ECONOMY INTO A TAILSPIN. I AM STICKING WITH MY SHORTS AND MY INFLATION HEDGE----SOUNDS LIKE AN OXYMORON AND I WOULD HAVE NEVER BELIEVED THAT I WOULD BE WRITING THAT IN THE SAME SENTENCE.


MORE LATER

RBS Needs $42 Billion Infusion

When I woke up this morning, I turned on Blomberg to hear them report that RBS will get a 42Billion dollar infusion. Fair to say that banking is back at the epicenter of traders minds? The futures are lower (though off the lows of the morning) and I just can't see anything positive this week.

Yesterday proved that there are both some jitters and some money ready to be deployed. The see saw action yesterday reminded me of this time last year when we started a fairly rapid descent.

Is the Euro-Yen telling us that risk is ready come off of the table? The pair is down about 1% which is just another sign to me that we are going to see a rapid decline in equities (particularly financials) in the coming days. I added to my FAZ position yesterday and even though the position moved against me by the end of the day, I was content to hang on to it and wait. With bad news out of the banking sector on a daily basis I think FAZ will be a good one for me.

It always amazes me when I get comments like "have faith in your country" after I make a negative post about the economy. First and foremost, I love this country. I am proud to be an American, but I don't think the recent actions of our government are going to be good for our ECONOMY. It takes a ridiculous individual to interpret a short play on our economy as unpatriotic. It also amazes me when I see comments like "we always rebound and have always used debt". We have never used this massive amount of debt and thing will not always stay the same. We have been prosperous because we had a system of capitalism and a system that could be trusted. If we compromise those principles, things will change for the worse in a hurry.

BREAKING NEWS: BLOOMBERG REPORTS THAT BERKSHIRE HATHAWAY IS BUYING BURLINGTON NORTHERN. The futures got a quick pop off of the news, but are still in negative territory.

QUESTION OF THE DAY: WHERE DO OUR MARKETS GO IF OUR MONEY MULTIPLIER STAYS DOWN AS JOBLESS AND SAVINGS RATES INCREASE IN TANDEM WHILE GLOBAL INFLATION SLOWLY SETS IN WITH THE EXPANSION OF OTHER ECONOMIES?

Futures Point to Higher Open

At 7:15 am eastern, the futures are pointing to a higher open. Will I take criticism if the markets rally today? You bet---but part of being a successful trader is being able to accept being wrong. You just have to live to trade another day. I am not giving up on my thesis, and am still expecting us to end the week lower than we were on Friday.

Ford is out this morning with "blowout numbers" and will open much higher. While I admit that the team at Ford has done a better job than the competition during the economic downturn, I can't get excited about any numbers driven by government stimulus (Cash for Clunkers) created demand.

Why do I feel so strongly that these markets are headed down?

1. The deficit is overwhelming---enough said.
2. The falling dollar contributed to both the top line and bottom line to many companies last quarter. We are past the point of diminishing return.
3. The jobless rate is getting worse.
4. The money multiplier is in NEGATIVE TERRITORY
5. The next government stimulus (if there is one---will send the markets down as the markets have already told us that we are at the breaking point on debt)
6. Banks are failing every week.
7. Valuation got ahead of itself, money has been made and many are going to be willing to bail out of the markets with their profits.
8. The worst is yet to come for commercial real estate.
9. GDP across the globe is improving and we could find ourselves redefining stagflation.

Sound simple? If the above list seems to simple, then go take a look at how many stocks have recently violated their 200-day moving average. From a technical perspective what happens after that all important line is violated?

I will be watching volumes early this morning. Friday had some high volumes late in the day, but you have to remember that many mutual funds ended their fiscal year on Friday.

I consider the biggest risk to my thesis to be the potential that the dollar falls faster than expected. Jim Rogers has made the point on our show that if the dollar falls fast enough, the major averages can go up while you lose "real" wealth. Marc Faber has called cash a risky asset for that very reason.

I think we see 9000 before we see 10,200.

I bought FAZ on Friday (not one for the faint of heart). I am holding FCX as my inflation play. Otherwise, I am watching and waiting.

Please make your comments. We WILL NOT ever sell or otherwise release your email. I firmly believe that we learn from each other. Just keep it clean.

Eric Cantor: Small Businesses to Pay for Healthcare Overhaul

There is no doubt that any additional tax on small business will rock the stock market. Later we will have a detail about the money multiplier, the so called good GDP number and how it was worse than one of Greenspan's bubbles, and why we think the market will go below the March 2009 lows in the coming months. Stay tuned

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Government Policies Taking Us Back To 1987?????

I am not a history buff at all, but sometimes it pays not to ignore the obvious. When in history have huge defecits been good for the economy in the long run? When have artificial bubbles not burst? We saw the market make a huge rally on Thursday as we "discovered" that GDP grew during the quarter. BUT a deeper look saw the artifical increase by government stimulus-THAT CAN'T OCCUR AGAIN. Can't? Well couldn't the government just heat up the ole check writing machine and pump some more stimulus into the pockets of consumers? They could, but it would not have the same effect? Why? Because everyone knows that our NATIONAL DEBT IS AT THE BREAKING POINT!!! We are on the verge of collapse if tax, spend, regulate, and fake doesn't come to a screaching stop.

Has this been a government stimulus rally? Was the smart money on the street able to take advantage of the momentum and push the markets even higher? And perhaps the biggest question WERE THE MARCH 2009 LOWS THE LOWS OF THIS RECESSION? I believe that the smart money took advantage of the change in momentum and picked up consumer confidence. I believe that the March 2009 lows will be tested and probably broken within the next 6 months.

Taking a look at charts around various industries, we find many charts close to their 200 day moving averages. If these averages are violated, will panic set in? I believe that it will----AND THIS TIME, IT WILL BE WORSE THAN BEFORE.

I bought FAZ on Friday had a nice gain. I am looking to roll out of many of my positions and be prepared to get short. The obvious play appears to be short real estate and mortgage companies---but be careful. That trade could be crowded as many well know experts brought the thesis to the forefront of attention late last week.

Is the American consumer in the tank? Is it in worse position than it was this time last year? A government stimulated jobless recovery (and the most socialistic policies of our time) tell me that the consumer is in far worse long term shape than anyone in the MAINSTREAM MEDIA IS WILLING TO ADMIT.

No the drop might not be overnight---but our standard of living is in decline. Those willing to overspend will not be able to access the levels of credit they were able to access just 18 months ago. And those with excess income, are going to tend to save rather than spend. So how far will we contract? How far socialist will our nation become? The more socialist we become===THE MORE BEARISH I WILL BECOME. AND LETS DON'T EVEN TALK ABOUT HOW INFLATION DURING THESE TIME COULD HAMMER THE ECONOMY IF IT GETS OUT OF THE BAG.

See Congressman Michelle Bachmann speak out against SPEND NOW AND LET SOMEONE ELSE PAY LATER. SHE ALSO TALKS ABOUT WHAT IS HAPPENING TO THE DOLLAR!!




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CHECK BACK SOON!!!!

IS IT 1987 ALL OVER AGAIN?

I have taken several months off from blogging and must say I miss the daily interaction with readers and am glad to be back. I have been telling my friends that I am reducing my holdings in stocks and believe that we could be headed for a 1987 type crash in the near future. Am I crazy? Well those of you that saw my call on UNG may think so. I lost a lot of money on that trade.

How do I recover from my losses, by analyzing what I did wrong and making another play---essentially living to play another day and by being smarter on the next trade.

I really thought we were headed for a period of massive inflation and I chose to play that through natural gas. Was I wrong on my inflation play? Was I wrong that inflation would begin with the decline in the dollar? I think I am still on the right track, but I think we are in for a very weird period first. Right now we seem to be in a quagmire whereby the strength in the dollar will hammer the markets? Wait a minute---doesn't Larry Kudlow scream for King Dollar every night? If the dollar strengthens, we lose two components that really helped earnings this quarter---exports and the boost from the exchange rates for companies earning in other currencies. If that shoe drops, we quickly find out that this market got overvalued in a hurry and the future isn't so bright. 700 on the SP by years end? Stay tuned.

I will have more this weekend and I am glad to be back. We will be bringing you interviews again in the very near future.

Natural Gas

I lost a lot trying to play natural gas last year. I bought the UNG at $38 and sold out much, much lower. I say that to temper excitement as I think Natural Gas is the play of the year. Now I know that the G8 met this weekend and according to the MAINSTREAM MEDIA, they have inflation under control as they have figured out how they can "flip the switch" and call in all of the excess liquidity. The dollar is even moving higher on the word out of the G8. I don't buy that for one second. I think we will see inflation and that will push nat gas much higher. Lets take a deeper look.

Natural Gas is undervalued in comparison to crude oil according to historical standards. Why? Because as panic subsided over crude oil, natural gas became a less viable alternative as it would take massive infrastructure spending to make a transition to power our automobiles. A conversion to natural gas is mandatory in my mind and the price of the commodity will go up as it becomes a reality in the minds of more investors. Crude oil has doubled in the past couple of months and natural gas is still working to put in a bottom. History tells us that this will change and often times these disparities right themselves in a very short time period.

Why has gas stayed down? Inventory levels have stayed surprisingly strong as prices plunged. There were several major finds and the drilling had been completed in these areas which sustained supply over the long haul as demand fell dramatically. The companies owning these wells had spent a tremendous amount of money completing these wells. They were not going to leave it in the ground as prices fell, they are pressured to recover their investment as quickly as possible. As a result, they have been producing the commodity even in the face of major declines in demand.

This trend will NOT continue as demand increase. Sure they will keep producing what they have, but will not be spending extra money to increase production until prices show a sustainable recovery. It is easier to take supply (drilling rigs) offline than it is to put it online. The cost to produce new finds is approximately $3.70 mcf. I would expect that prices would need to be sustained well over $4.50mcf before we see an all out effort to get production back online---and all the while inventories will be declining.

All of this is just the natural demand supply relationship and does not factor in the "panic spiral" that I expect we will see with the dollar/oil relationship. I think as we see the dollar fall (and it will over time in my opinion) oil will rise and Nat Gas will rise even further as it makes up ground in relation to oil. In summary, I think we could see a double in Nat Gas by the end of 2009. I just hope my prediction is better this year than it was last year.

Consumer Confidence===I have no confidence in IT.

I have no confidence in the consumer confidence number. The market may move when it is reported but we have seen it improving lately and I truly think that the number is impacted by what the Mainstream Media is saying. The gauge that I use for consumer confidence is the Money Multiplier and it is at historic lows. Confidence is worth nothing unless consumers are putting their money where their confidence is---and the money multiplier tells us that they are SAVING NOT SPENDING. We need to see the savings rate increase and saving is a good thing--but the MM is telling everyone how important the Consumer Confidence number is and it is simply not important in my book.

I think natural gas is very close to the bottom. It is down in premarket trade, but I will be looking at it today. I will do my analysis this weekend and have it posted here. The market tried to break above 950 on the S&P yesterday, but could not close above that level. I would expect a down day today to test 930-925, but the futures are hovering around the key 939 pivot at the time of this writing. If we get a down day I might be looking to add to my key "inflation" plays such as FCX,X, and oil and nat gas drillers/producers/servicers.

I will wait for more clarity and would like to see us test 925 today. Be careful until we get clear direction from here.

CONSOLIDATION---GET READY FOR THE BREAKOUT

The tight action lately (on a closing basis) shows me that we are heading for a major move in one direction. I have been wrong but I think we are going to test and break 925 on the S&P. Futures are up slightly at this time, but they are also talking about Russia and others threatening to diversify away from Dollar Denominated assets. I see the dollar continuing to fall over time and think oil is still a decent buy here if you can stand some volatility. I still like FCX and X as plays on inflation and am looking in depth at natural gas. I will have my detailed analysis on natural gas this weekend.

Jim Rogers laughs at the accuracy of government jobs numbers. I will have more when we get more clarity. See the Rogers video below.

STOCKS HEADED HIGHER?

The futures are pointing to a much higher open and are above the key 945 level on the S&P. I have been looking for a pullback and have been wrong. Jim Rogers explains in the video below that he has no shorts right now and that is unusual for him. He makes some great points and I guess I will have to listen more closely as today doesn't appear to be anything but upward for the averages and commodities.

Headed Down?

Yesterday was a very interesting day and many traders walked away with the attitude that it was a good day because we rallied at the end of the day. I am concerned as I saw many of the stocks that I consider to be leaders drop on higher volume. The futures are almost flat here, but I am looking for a down day. At the current time, the DAX futures are above the 5000 level and I need to seem them go below that level for us to get a really nice "correction" day in our markets.

There is a lot of talk on FOX this morning about how small business has been limited in terms of their normal credit during these trying times and that will hamper true economic recovery. I like BOOM here and think it will go much higher unless the market gets hammered. I would love to have a pullback day here for the market and get the opportunity to buy this one at lower levels.

The energy sector is going to continue to rise in my opinion. The dollar is going to fall slowly and that is going to cause the price of oil and gas to rise. DID I MENTION THAT FOX NEWS REPORTED THIS MORNING THAT GASOLINE HAS GONE UP 41 STRAIGHT DAYS AT THE PUMP? AND PEOPLE TRY TO TELL ME WE ARE HEADED FOR DEFLATION!!!

FCX AND X presented good buying opportunities yesterday in my opinion--and they will again, so be patient. I am looking to put some solar in my portfolio as the sector is on fire. I will have more analysis later on this sector.

Trend Reversal?

Some are saying that we had a trend reversal on Friday because the "better than expected" jobs number should have sent the market much higher. I think at best this rally is overdone. I sold a call spread on COF and have been burned but have 2 weeks to see it turn around if the stock gets below $22.50. I am curious to see how today pans out. If we roll lower, I will be ready to get short---I have my list ready. The German DAX futures are hovering right at the 5000 level (4998.5 at the time of this writing). I would like to see it fall below 4970 to confirm my short bias.

McDonalds sales are up 5.1% for the month of May--but the stock is trading lower as it sees potentially a 20% drop in earnings according to a report this morning.

Keep an eye on the Dollar, Oil, and Natural Gas as well. If the market pulls back very far--it will be key to asses whether the commodities get cheaper and the dollar stabilizes. It will be a very scary scenario if the commodities continue higher as the market falls.

I don't like to trade as much on Mondays, so I will be content to sit on the sidelines and get ready for tomorrow. If we break key levels, I will make some trades on SDS.

Jobs Report Sends FUTURES HIGHER

The jobs report has send the futures much higher. Oil is soaring as well and I am happy with my X and FCX. I sold a call spread on COF a couple of days ago and it appears that I will take a big loss on that one. I was not in the camp that thought the banks were poised to headed higher through the summer. I am surprised by this market strength.

I still think the place to be is owning "stuff". Oil, Nat Gas, Coal, Gold and Silver are going to outperform the market. I like RIG, MEE,BTU and those type stocks for the long haul. I will do more of an in depth analysis on those specific stocks over the weekend--they will be volatile in the short run. I have gotten hurt from time to time trading each of those names.

It is scary to me that this market reacted so positively to this jobs report and did not react to the announcement that the White House intends to appoint a PAY CZAR
CLICK HERE TO READ THE ANNOUNCEMENT More taxes and regulation will cause our economy to collapse.

I believe that the jobs report points more toward stagflation. This may be a trap setting up in the markets. I still think we retest the lows, BUT I HAVE BEEN WRONG.

PULL BACK COMING---BUT HOW SEVERE???

I have been pretty much on the sidelines as I have been unimpressed with the volume in the latest rally. I think we are going to see a pullback today and it is going to tell me a lot based on its severity. I have been dabbling in options--selling puts on FCX as I think it will continue to do well as inflation takes hold. I sold half of my X and hope the other half will run.

We have a great interview with John Williams of Shadow Stats coming soon and will have more market analysis when we feel like there is something to play. We don't make calls just for the sake of making them and are frankly scared of this recent rally. Good volume could change my mind---but right now I am on the sidelines.

Crisis Over?

I am amazed at all of the cheerleaders that want to declare this economic crisis over. We are now hearing speculation that the DOW will hit 10,000 before year end and the S&P could get into the 1200 range. We won't fight the tape--but don't share the overall economic optimism. The government deficits will play a role in running up interest rates and people seem to be forgetting that rates going up will not be great for growth and expansion.

Monsanto (MON) is down in premarket trading as they see earnings in the lower end of the range. These markets seem to be discounting the fact that while certain economic indicators look improved--we still have the possibility of dismal earnings coming from some of these companies. There is money on the sidelines and it may get suckered into these markets and make them go higher. I ask the following questions when deciding if we are on the road to total recovery:

Are interest rates going to be stable?
Are the government deficits going to cause higher taxes?
Are energy prices going to be stable?
Are jobs going to improve within the next six months?

Just something to think about as all of these points will impact consumer behavior. Consumer Confidence was great according to reports yesterday. The strange thing about this recession was that it was a pocketed recession. There were pockets of strength around the country and likewise there were pockets of weakness.


I still have a good deal of my portfolio in cash and because I am worried that we could see another leg down. The futures are strengthening right now---I got short a few minutes ago and am about to get stopped out. This run is tough to fight, but you just have to keep your losses under control.

I sold FCX put spreads yesterday as I really like that stock. I have never really utilized spreads in the past, but intend to do so in the coming months as it can help reduce my risk.

WE HAD A GREAT INTERVIEW WITH JONATHAN HOENIG THAT WILL BE POSTED LATE TONIGHT!

CHOPPY MARKETS

The futures are well off of the lows of the morning and point to what has become somewhat of my "theme" for these markets. CHOPPINESS I will say that I am planning to sell options in this type market. I am selling some puts on FCX. I like the company and can get some decent premiums on the options. I am also considering selling some calls on Caterpillar CAT. Even if the market rallies, I just don't see CAT jumping over the summer.

This morning gold and other commodities are down and we are hearing some of the talking heads talks about deflation again. I look at deflation talk as a great way to find what I want at cheaper prices. I don't see deflation as a problem at all. The North Korea nuclear test seemed to shake the markets for a short while, but not as much as I would have expected. As I am typing the futures are getting stronger and even though I am surprised---you can't fight the tape.

I won't make up things to say and while this is a much shorter post than normal---the market visibility is less for me. As we get more clarity, we will have more to say.

Asian Markets Head Higher---Commodities Drive

Check out this Article from Bloomberg as Asian Markets head higher tonight driven by oil and gold stocks. Click here to read the Article

Here what legendary investor Jim Rogers said on 5/17/2009 Part One of The Interview
Jim talks about how we must start living within our means and our current policy of spending to counter defecits is INSANITY. Jim says politicans are doing what they have to do to get re-elected and it is wrong for them to ignore the needs of 300 million Americans. WE ARE DESTROYING THE VALUE OF THE DOLLAR AND ARE THE LARGEST DEBTOR NATION IN THE HISTORY OF THE WORLD!!!! He says the Bureau of Labor Statistics has been lying to us for years about inflation. Hear him talk about the ANTI-CAPITALIST ATTITUDE. IS THE GOVERNMENT TRYING TO CONTROL THE BOND MARKET? If you are looking for a low APR credit card--check out low rate credit cards



And Part 2 of The Interview
Hear Jim talk about why he is not selling his gold and wheter or nor he is buying more.
The IMF is working to get permission to sell some of their gold and if they do, it may be a good buying opportunity. Is Farming going to be the occupation of the future?

Are you looking for low rate credit cards? Check out low APR credit cards


We are going to do a show soon on CAPITALISM VS. SOCIALISM.

CHOPPY ACTION

I think we continue to see choppy action and I believe that one of the greatest disciplines in trading is to know when to stay OUT!!!! I have lost a lot of money in the past by forcing trades.

That said, I am more convinced than ever that we are going to see increasing oil prices. Natural gas will follow. Inventories showed that oil demand is at least stabilizing and will grow in the long term. The dollar is going to continue to be choppy but weakening and this will push oil prices upward. That combination is worrisome. Oil prices acted like a tax on the American consumer and I believe had a lot to do with consumer confidence numbers last year. I will detail the plays that I like in the oil and natural gas space in our post this weekend.

Don't get emotional about this market---it is easy to see a good run in one direction and believe that we are off to the races in that direction. Look at the overall picture and you see price action that would lead you to believe that this market could go higher. Listen to what is going on with the dollar, housing, oil, and other commodities and you know that this economy faces headwinds. My recipe for staying cautious and waiting for more clarity before putting my money at risk.

Caution

I am exercising extreme caution here. These markets are going to be choppy. Those of you that have followed our blog for a while know that I won't make a trade just for the sake of making a trade. The housing numbers have confused the markets and I am in wait and see mode. I hate to play the waiting game but I hate worse to be wrong and lose money.

We have some great interviews next week and if the markets continue to be choppy, we will continue our exploration of trading psychology.

I am convinced that we will have rampant inflation but am trying to figure the "when". I will have more on that subject in the next few days.

Headed Higher

These markets are determined to head higher. You can't fight the tape and my analysis yesterday of when all of the talking heads are in agreement---go the other way. We could see 1100 on the S&P before another major correction. The money on the sidelines must be coming in out of fear of missing the buying opportunity of a lifetime.

I still contend that we are going to see inflation and the market rise will contribute to it. The markets will make individuals more confident to spend as they will feel wealthier. I have said over and over that the money multiplier will not remain at these low levels for long and when it moves up inflation will take off.

The housing market still appears to be lagging and will have to stabilize before we see the hyperinflation scenario that we have been fearing. Notice I said stabilize not grow. It only has to stop falling to be the final ingredient in the inflation mixture.

Some of our guest have contended that the Fed can pull in the liquidity faster than ever before because they can just not renew some of the troubled assets they have gotten through the discount window. I don't know that I subscribe to that theory.

I still like FCX but wouldn't chase it here. Natural Gas through the UNG is worth a look but I wouldn't chase it either.

Everyone Calling For Correction

Every talking head in the media is calling for a correction. Could the professionals take this market up in hopes that they can sucker some of the money on the sidelines? You rarely see things happen when all of the talking heads agree. I think we may head up, but at some point we are going to get a quick correction. I am preparing a short list and a list of calls that I would like to sell. STAY CAUTIOUS!!!

We have been traveling the last few weeks, but are off of the road and will be bringing more interviews soon.

Major Correction Ahead?????

The Bulls have fought a great fight lately and I think that we could be headed higher---BUT WE HAVE SOME MAJOR ROADBLOCKS. It appears that we are headed to the land of more government programs like nationalized healthcare. There are only 2 ways to pay for it 1) Raise Taxes 2)Monetize the Debt. Raising taxes at this juncture could put our economy into a tailspin from which we might never recover. Monetizing the debt will certainly---as if it is not already certain--cause inflation to spike out of control.

So what do investors and traders do? Right now we have to watch the tape. The market is acting as if it wants to hold up and I think until we see some signs of weakness we should be careful about shorting. If we ever turn around and reverse below 790 on the S&P this thing could get ugly.

See what David Tice had to say a couple of weeks ago.


The massive government spending was designed to kick-start the economy. It may kick start inflation and give a false sense of security to many. We tend to have short memories as consumers and if we crank up the spending again at the first sign of recovery, we are going to create another bubble that we be mega-painful when we finally see it burst--and it will. Quantitative easing has created many a bubble and Alan Greenspan used more of it each time a bubble burst. We are now down to the last chance in my opinion. We must bite the bullet and let the capitalistic system run. Yes it will be painful, Yes there will be bankruptcies, Yes times will be hard for many... But if we don't do the right things now we are going to see our markets crash. If we raise taxes and hamstring the job creators we may not see these levels in our equity markets for many many years. If we aren't careful, the street will be full of bears and they will change the name of Wall Street to Bear Street.

So what happens? I will stay tuned and watch for the bulls as long as we stay above 790 on the S&P and as long as we don't hear of a plan to hike taxes---but if either occur, I am running for cover. FCX has pulled back nicely and just as I said you are able to buy it cheaper. I am hoping it will pull back to about $37. I am still watching ICE and hope they can close over $103.

I love natural gas right here and I think I might even be able to get it a little cheaper. There is no massive rush to push it up right now, but it sure presents a great long term opportunity if it pulls back a little more.

RANGEBOUND?

I was unimpressed with yesterday's rally except for the simple fact that we did find stability after Wednesday's decline. JCPenny beat quarterly estimates, but lowered full year guidance. Those calling for recovery by the end of the year may be very disappointed. Now many may argue that without recovery my inflation thesis may be out the window. I disagree as there are pockets of strength around the world such as China that will recover and put pressure on prices. I stand by my inflation thesis and am long July corn at the moment.

The futures are down at this time and I am just sitting by and waiting on FCX to fall a little more. It has been volatile and should get another push to the downside. I have also been watching ICE. It wants to move up but needs to close above $103 before I can really get excited and it is one that is subject to news risk and the position must be monitored at all times.

The bad economic news is not over and it is just a matter of how much has been "baked into the cake". Today is options expiration day and it could get volatile.

Deflation Chatter Resumes

With all of the worse than expected reports out of China and the Euro Zone, the talking heads are all screaming deflation again. The simple fact is that we will see the money multiplier rise again soon and it will cause inflation. The deflation talk presents a great opportunity to buy commodities. I bought some corn yesterday and am loving the pullback in FCX.

Deflation will be a short term price movement, and inflation will be the long term phenomenon. I expect to see the dollar continue to fall and that will catch the deflation crowd off guard when the multiplier actually grows.

Am having technical difficulties and will have longer post later.

Correction Coming??

The futures are pointing to a lower open and the 900 level on the S&P is key. A close below 892 and we will be headed much higher. The bulls came out in force and defended the 900 level yesterday and I hope they can do it again. I will look to buy FCX if those levels hold, if not I will be in wait and see mode. If the bears appear to be winning the day, I will look to short some of the restaurants like CMG.

I still believe that the most tradeable theme is the falling dollar. It will be volatile, but appears that it has started its decline. Oil, Natural Gas, Corn, and other commodities are on my radar screen.

7:30am THE FUTURES ARE NOW GETTING HAMMERED---THEY ARE TRADING RIGHT AT THE KEY 892 LEVEL.

Today could change the trend---will update throughout the day.

GOING HIGHER OR RANGEBOUND??

These markets are determined to try to go higher. Last night every effort was made to push the futures lower and it just couldn't be done. FCX provided a buying opportunity yesterday as it pulled back in the first few hours of trading. The tech stocks continue to lead the charge--surprising many. I wouldn't be surprised to see this market challenge 950 on the S&P this week. You are hearing too many "experts" in the mainstream media calling for some massive correction. That generally signals that we are headed a little higher.

China had disappointing export numbers last night--much worse than expected---but that didn't deter the U.S. futures from rebounding after a little drop in "sympathy" for China. It seems that investors have baked a lot of bad news out of the U.S (and the China export numbers were really a reflection on the U.S. economy) into the cake and are determined to move higher.

Natural gas prices are moving higher this morning and I think you will see that trend continue. This is a ridiculous level for natural gas and it almost assumes deflation for years. That is not happening. UNG is a good way to play that if you prefer the ETF. I see natural gas prices higher than most of the forecasts out of the nat gas companies. They have to be somewhat conservative in their projections, but I have seen how the drilling has stopped and it is only a matter of time until we get a strong trend on the back of some "declining reserve" report.

I am watching SEIC and will look to buy only if it trades over $16.39. It may not get there this week,but this one is worth watching when it finally decides to break that level.

The China story may cause copper prices to pull back---and then again it may not. If it does it will be another good buying opportunity in FCX. Some of you have said I am beating the same drum with this one, but it has doubled while I have been pounding that drum and I expect it to move up to $75 this year.

I will be interested to see how the bonds trade today. I think the bonds are setting up for a great short. I am only watching them for right now.

INFLATION, INFLATION AND MORE INFLATION--IT WILL BE HYPER

Here is yet another case for hyperinflation. While we are spending as fast as we can---we are destroying the value of our currency. How are we going to afford the interest on continued debt when interest rates are sky high? MORE TAXES ANYONE? There will be a move to raise taxes which will only deepen the problem as it will cause job loss and more dependence on "big brother". We must stop spending NOW.





John Williams of Shadow Stats has been calling for hyperinflation for quite some time.


And this could be the scariest of them all....

All About the Stress Test

The markets look to open higher today as traders seem to be pleased with what they are hearing from the stress test. While it sounds as though some banks will require additional capital down the road, all indications appear to be pointing to the immediate crisis being over. You have heard me say many times that I did not buy the fact that we would not have inflation because all the money was going to build the banks balance sheets. Inflation is closer on the horizon than many would like to believe because improving banks will lend and the money multiplier will increase rapidly.

My FCX play continues to roll and I am now looking at natural gas. Yesterday I heard Chesapeake's CEO discuss the reduction in drilling that has taken place as we knew it would. I have said many times that production can be taken off line faster than it can be put on line. Many of the natural gas companies have had a decent run lately and I will try to wait for a pull back before making an entry.

The markets look poised to move higher still and S&P 1100 is certainly not out of the question in the near term. Longer term, I think we have to keep a watchful eye on the possibility of stagflation and the value of the US dollar. I must admit that many of the traders that I have talked to have been expecting a pullback and I think that is what caused the shorts to take a beating recently. When we get a down day, it will be interesting to see if the S&P can hold the 900 level.

Great Interview

See this great interview with Nick Santiago of inthemoneystocks.com

Taking Some Profits

One thing volatile markets will teach you is to take profits. We have seen some nice gains in the past few sessions and one would be crazy not to cash in on some of those and reassess things. Currently the futures markets are down slightly and we could have a pullback in the near future.

I had a great interview last night with Nick who is the Chief Strategist at inthemoneystocks.com. The full interview will be posted tonight. He thinks this rally is making gold an awesome buy and I agree. I had been content to wait on the gold trade, but when you hear Nick talk you will understand why I am re-evaluating the gold trade.

Did you see Natural Gas and Coal prices yesterday? I think my inflation ideas are about to come to pass. Many will argue that the banks are headed right back down and that will have such and impact on consumer confidence that we will see the entire market tank again and then we will get caught in another deflationary spiral. I am not sure about either, but do know that the money multiplier has been below 1 and when it rises we will have inflation. The banks haven't been lending and this stress test may cause that streak to extend for a while, but at some point they will want to lend again.

I plan to watch the market today. If we break 889 on the S&P we could have a down day to about 873. The Nasdaq has been the leading market this year and if the averages weaken this morning, I would consider buying the QID. These markets appear to be overbought in the short term and QID is a great way to play the downside.

Futures seem to be getting weaker as I type. Full interview with Nick will be posted late tonight.

What are the BONDS saying about INFLATION?

Unless this is your first visit to our site, you know that we have been debating the inflation/deflation arguments here. I have been early (which I admit is tantamount to being wrong) on my inflation call. But is my prediction about to come true? If it is how do we profit from it? We all know that some of the best traders reside in the bond pit. These guys have been driving down the price of bonds which sends yields up. I say if the best and the brightest think rates are going up, then we can assume that inflation is on the horizon. Yes I know that the prices of commodities have been falling as of late, but with the stabilization in the economy and the markets, consumer confidence is bound to rise and drive the money multiplier above one and then lookout.

I like FCX and again, this call has been made on this site numerous times, but I think this one will catch on fire as the bond yields climb. China will have an impact on demand and their economy is recovering faster than ours. Demand for copper is returning and FCX will be a great hedge against inflation. Not to mention that these guys have nice gold reserves.

I also like SLB. If inflation rears its ugly head, the oilfield will be booming again and SLB will profit. We must drill domestically, and while these guys are international, more drilling on the domestic front will drive their margins higher.

If you like to take a ride on the wild side--check out MEE. Coal is going to be in demand and these guys will definitely profit. Now expect some choppy trade, they were up around 10% Friday and it will continue to be volatile.

This market is poised to go higher, possibly much higher. Jim Rogers once told me that when inflation takes hold and the dollar falls, the markets could rise--even though real wealth would be lost. Now the dollar is holding up very nicely but I think we may see the S&P break 1000. No I am not crazy. So many have been expecting these markets to fall out of bed, but if you look at the numbers, we seem to be destined to go higher. How many times have you heard me say that you can't fight the market and I think now is the time that some of the shorts are going to get hurt. It seemed so logical to try to push this market lower, but the BEARS just couldn't get the job done. While I still think we may have another leg down, right now I am definitely BULLISH. I think you can stay away from gold during the next several months---even though I really like it over the long term---I think you can buy it cheaper in a few months.

BULLS ARE IN CONTROL!!!!

Market Go Higher UNLESS THE PIGS KILL IT

This market is destined to go higher, unless we get some bad news. If you look at the numbers, there seems to be no doubt that we are going to test 900 on the S&P. The news is all over the swine flu. People are being encouraged to stay at home by government and that will hurt the economy if it lasts long.

Why do I think the markets will rise? The market overcame worse that expected news this week and how many times have you heard me say that you can't fight the tape. This market has factored in a lot of bad news and is showing you that it intends to move higher. Now that does not mean that we are not going to retest the lows at some point---but right now the trend(and a rather strong one) shows you that it goes up.

Send us an email and give us suggestions as to who you would like to see on our show. We want to deliver the guests that you want to hear. We have some new guests scheduled very soon and are looking to book more shows a week in the late summer when the traders get done "vacationing".

My FCX had a great day yesterday and I am learning that it is better to trade less and make more quality trades. Overtrading only benefits your brokerage firm and can frustrate you faster than most anything. In the end, this game is won or lost on discipline---self discipline. If you are looking to blame your computer, your stockpicking service, or anything other than the person in the mirror---then you will ultimately fail in this business. If you are willing to accept responsibility and try to learn from the experience then you are definitely on the right track.

We are going to have a series on psychology in this business coming very soon. Stock Shotz is expanding and we are going to have more updates than ever before---I know it has looked just the opposite lately as we have been busy traveling and working on our new website---but we are expanding and you will like what we have in store for you. Thanks for your participation.

Early Strength

We are seeing strength across the globe right now and bulls seem firmly in control. It doesn't matter whether you think we overshot to the downside or think we are currently overshooting the upside---we seem destined to touch 900 on the S&P. You can't fight the market and this market has the strength--especially if you see how we reacted after the bad news yesterday.

It seemed that the Federal Reserve was talking to the ECB yesterday in their statement. The Fed is looking for help in their battle with the current downcycle. They are out of room to move rates and it would help their position if our friends across the pond would participate---notice that I didn't say it was the right thing to do--just that it would help the Feds position. Most agree that we are trading inflation---possibly hyperinflation for short term stability. We will have guests on our show to further discuss whether it is a good strategy.

We sent the email summary of the Jim Rogers interview to all and apologize for the technical difficulties. We will continue to post great interviews so stay tuned.

Thanks for your participation.

AWAITING THE FED!!!!

No doubt traders want to take this market higher. I look for the action to be very choppy after the announcement---not because the decision will be a surprise---but because the markets have been in neutral all week. The battle lines are drawn and there will be strong advocates on both sides and we shall see whether it is the bulls or the bears that prevail.

Oil numbers this morning would indicate a sluggish economy, but that didn't deter some of my favorite inflation type plays like FCX. Bad news this morning did not keep these markets from going higher.

We had a great interview with Jim Rogers this morning and even though we had technical difficulties, those of you on the email list will receive a summary of the interview. Our show is growing and our new website is almost complete. STAY TUNED

Surprising Strength

These markets are showing surprising strength. I watched as some of the overseas banks gave a ray of hope last night---and saw it give a boost to domestic futures. This crisis is not over---but confidence is improving. So often we see the markets overshoot and this one could have overdone it to the downside.

I hate to be boring, but in this environment I like FCX. If in fact the banks are in better shape than many thought, does that mean that inflation is near? I believe that it does. I have been wrong with my initial timing on inflation, but believe that if the banks recover faster---inflation will have to be dealt with.

Do you have a trading plan? I use to think that I didn't need one--was I ever wrong. We are going to write our plan online and continually revise it. You can watch as we see where we were wrong. The thing that I like most about this business is most traders are willing to help other traders---this is a great business.

We are spending alot of our time working on our new website and will be producing much more content as soon as it is ready.

We have some great interviews coming up---most notably we will be talking to legendary investor Jim Rogers live from Mobile, Alabama with Mr. Tom Busby on Fed announcement day next week.

STAY TUNED

Awaiting the PULLBACK

The futures are pointing to a lower open this morning, and while yesterday was a nice day in terms of finding support and bouncing---I think we are going to see some profit taking. In my quest to become I better trader, I am learning to flush my emotions. In the past, I would have wanted to go "all in" after a day like yesterday. I am not saying that this market can't go higher from here---just that I think we have exceeded short term expectations of many and will see some pullback. I do think that days like yesterday give us a clue that the "doomsday scenario" is now on the back burner.

What will next weeks Federal Reserve announcement hold? I don't think there is any question that they will hold rates at these historic lows, the real "meat" of how the markets will move is obviously in their statement. So how will they posture? Even though I have been screaming inflation, I think the Fed is going to discount the possibility of inflation at this point. When you look at what oil has done over the past few days (even if you are an inflationista like me) you have to say that they Fed will still keep deflation their main focus. I have been early on my inflation call and have been wrong. Several months ago I posted a question "Is being early equivalent to being wrong" We had many great responses to the question--but I have decided that being early is being wrong WHEN YOU PUT YOUR MONEY ON IT. I lost money trying to play the weak dollar and I WAS WRONG---I LOST MONEY. I have since made a few nice trades on FCX and other plays that I was looking at because of my inflation thesis.

Right now I am mostly in cash and have been trying to make a little money by "scalping" the SP futures. Today's focus will be earnings as we don't have any scheduled news that we would expect to derail the markets.

Have a question for Marc Faber? We will interview him either today or tomorrow, so get your questions in now. Dr. Faber was advocating that those buying gold do so by purchasing the physical metal for delivery when he was on Bloomberg a couple of months back. I will ask him if he still believes that the entire financial system is such that one would need to hold the "physical metal"

I am sitting by patiently today trying to exercise "caution". We are trying to finalize an interview with Mr. Sam Zell for May. I am anxious to get his outlook on commercial real estate, especially given what we heard from noted trends forecaster Mr. Gerald Celente a couple of months back.

Earnings Fail To Impress

Earnings are having a hard time impressing this market. It seems that traders are dismissing the euphoria that has dominated the market for the past six weeks. Was this really a surprise? Were we really expecting that after the past 18 months of dismal economic news people were not going to take profits? I wasn't. I missed a lot of this rally as I expected it to end faster than it did. The futures are down this morning and I am not calling for us to retest the lows of the year, but I do expect the S & P to go test 790.

We are in the area where you can start making your buy list and wait until the market affords you an opportunity to get in. Personally, I think a great way to play the China recovery story is thorough FCX. I think it may fall with the market for the next few sessions and give us a strong buying opportunity.

I am still negative on many healthcare stocks, even though Boston Scientific reported stronger than expected earnings this morning. They are one of the best in the space and I would not advocate selling them short, but there are others such as EMS that I like as short candidates.

We will have a hard time with clarity until we get the final results of the bank stress tests. Other than the news factor, I could care less how these banks do with these tests. I would prefer to stay away from the space and just see what kind of news value these test results bring.

WE HAVE AN INTERVIEW WITH MARC FABER THIS WEEK.

STAY TUNED

CHARLES PAYNE INTERVIEW

I interviewed Charles Payne of Wall Street Strategies and Fox Business News on Saturday. Charles thinks the rally is overdone. Visit our website for the full interview www.stockshotz.tv

DOW 10000?

Is DOW 10000 by year end a possibility? I don't think so, but you can hear alot more bulls chattering these days than you did just a few short weeks ago. I think the market is going to move back down soon.

I am about is big of a healthcare bear (big pharma excepted) as you will find. There are so many changes in the reimbursement arena for healthcare providers that it will be virtually impossible to forecast earnings over even a 2-3 year time horizon.

I have seen more deflation pumpers making posts than ever before. So if the real money is betting deflation, how is the market going up. If deflation is the big bad wolf--then why is the market trading solidly? Because deflation is done, stability is perceived and inflation will take hold and will drive the markets higher.

I am still a FCX fan and am long AMN and DMND at the moment. I just bought those 2 for a swing trade and may be looking to exit tomorrow.

Every day I see that emotions play such an important role in the success of traders. We all want to see lines such as the title of the post and HOPE. But you can't eat hope, you have to see what the market is giving and try to take a little. How many of you trade for small, consistent wins and then wind up losing it all back on one trade? I sure have on many an occasion. Take control of your emotions. Looking back to my natural gas trade, I was wrong because I was so determined that it should go up. Instead of admitting defeat and taking a small loss, I got hammered and subsequently had to admit I was wrong anyway.

Tomorrow is one of those days that quickies are the best way to play and flat is the most peaceful way to start the weekend.

Charles Payne will be on the show Saturday---CHECK BACK

Crisis Over?

It seems like many want to declare the financial crisis over. I was listening to Larry Kudlow on the ride home last night and he was almost screaming buy as loud as Cramer does. Technically, I am looking for maybe a little more upside here, but crisis over? C'mon Mr. Kudlow, do you really think we are in for a V shaped recovery. Yes the Wells Fargo news was good and yes Goldman had some positive things to say---well maybe some not as negative as expected things. The bottom line is that this is a technical rally and none of the fundamentals have changed that drastically. I think most of us are more positive on the financial situation, but not to the point of calling the "all clear" when it comes to this crisis.

It will be interesting to see the intel numbers tonight after the bell. Many have been saying that the Financials had to lead us out of this downturn and others are saying that tech could possibly lead us. Regardless of your theory there, it would be great to know that we had some demand for Intel's products.

Copper prices are hanging in there nicely==about to make 6 month highs and my Freeport FCX continues to look strong. Of course, I am looking at copper when I make inflation calls---believe me there is nothing that I would be more happy to be wrong about than inflation. We seem to be getting a price break in Oil and that will help the overall economy---the longer it can stay low. I just see that with things picking up---we are going to get some demand shock which will drive prices higher.

I am still long AMN and DMND. AMN hit my target price and I got greedy---I'll never do that again--HA.

Don't get burned by earnings announcements. Know who is reporting or you could wake up and have your feelings hurt.

CHARLES PAYNE WILL BE ON THE SHOW THIS WEEKEND!!!!!

EARNINGS SEASON

Is this simply a Bear market rally? George Soros seems to think so. So the near term trade is short, right? I am not so sure. I think we may be headed a little higher. I expected the futures to to come out lower than they did tonight. Could we be in the "here comes the money from the sidelines zone"? So many are afraid that they are going to miss the "rally of a lifetime". I think we could get some panic money moving into the market--but I don't buy that we aren't ultimately headed lower.

The Wells Fargo news on Friday was so powerful because it was totally unexpected. Shouldn't banks be making money in this environment? Their product is almost free to them as long as they eliminate fear and maintain deposits. There are still many loans that are paying like clockwork. It appears that we have averted a financial system collapse and are now focusing on other things. I still contend that the money multiplier is going to cause us inflation. For those that have been arguing that the recent government action is only rebuilding the banks balance sheets, what happens when they get the banks rolling again? Isn't there normal wealth destruction on some level all the time? If not, why do banks make provisions for loan loss reserves? Do you Deflationistas contend that we have had no significant increase in the money supply?

Think about China and their recent stimulus plan. Will their spending on infrastructure cause commodities prices to rise? Does China have the demand to significantly impact the price of commodities? I would argue yes. Last year we saw inflation caused by rising fuel prices and it hurt our economy. As a matter of fact, the level at which we saw demand destruction surprised economists. Many were arguing that we would not see demand destruction because in an inflationary environment that phenomenon would not occur. Being half right is equivalent to being wrong. Can you have price increases without inflation? Many would argue no, but based on last summer, I would argue yes. Just as some stocks go up or down faster than the level of the entire market, so can commodities prices within the context of the global marketplace. Is a service based economy more susceptible to stagflation? Is an economy of entitlements more susceptible to stagflation? Yes.

Will our economy get less efficient with the redistribution of wealth? If your answer is no---please post it in the comments section. I believe that it will. So what does that mean for our investments? To me it means buy commodity based stocks FCX is still one of my favorites.

I believe that we are very dependent on what we see out of this earnings season. If we see better than expected earnings, we could see this rally move up more. If we see dismal earnings, I think it will provide shock to the downside more so than last earnings season. I think we have silently heightened expectations during this rally. If we confirm that things are worse than dismal---look out below.

Bullish Today

Wells Fargo just posted great news and Wal Mart sees earnings on the upper end of the range. This is great news on a traditionally bullish day. Barring a nasty jobs report today should be a great trading day. Good news from the banks will drive these markets higher and in my opinion--it will drive commodities prices higher as well.

By popular demand, we will post the FULL UNINTERRUPTED BOB LANG INTERVIEW TONIGHT.

April 7, 2009 Interview with Bob Lang of BIG TRENDS

This is part one of our interview April 7, 2009 with Mr. Bob Lang of Big Trends.

The Fear Trade

I have contended that this was nothing more than a Bear Market Rally, but I am not ready to sell short with both barrels yet. I am going to play wait and see today. I do think we are seeing fear removed from the market and at some point gold will be a buy as an inflation play--but for now I am content to watch as the fear premium comes out of the "yellow metal". I am long RHT, AMN, and DMND but stand ready to close all of those if necessary today. This market is making me believe in tight stops.

I saw Marc Faber on television last night and he was very iffy as to oils next move--he said it could hit $35 or it could hit $70. We are working to have him on our show. Tonight we have Bob Lang of Big Trends. Bob is an options player and this should be an excellent interview.

I am truly in wait and see mode so I will have more to say with the interview tonight.

Listen to theTIPS---Treasury Inflation Protection Securities

What does the activity in TIPS (Treasury Inflation Protected Securities) tell us? That the smart money is betting on inflation? Given the fact that the TIPS returned the most in March since they have since their inception in 1997---I would interpret that as a pretty strong indication that the smart money is betting inflation. Many are expecting the the CPI to exceed 4% or more this year.

Often times when I make a post about inflation, I get comments or emails that criticize it if commodities fall that day or the following days. The inflation argument is over the next 18 months--not the next 18 hours and I am not pegging it to a particular commodity---even given the fact that a rise in oil prices is the scariest of them all. In a guest blogger post on Market Club last week, someone made a comment that milk was $1.87 per gallon in Denver. Either I am getting screwed paying $3.50 per gallon or this guy was quoting mountain goat milk. We have not seen food prices drop at near the rate that they rose when oil was running last year---and if it starts to run again---prices will head up from these already inflated levels. Why? Because the demand will continue at surprising rates and the market will allow it.

I am expecting the markets to pull back soon. I am not totally convinced that we are in full bull mode as are many. Looking at the chart, I would change my mind over 870 on the S&P, but as for now I think we have ourselves just another rally in a Bear market. One thing to keep an eye on is the changes to the components of the S&P 500--those changes may alter the earnings outlook for the group as those stock being taken out were losing money.

I still like EMS as a short. It had a nice drop on Friday and I think it is headed to $25. Again, I think this is a well run company, I just think they are playing in a market that will be punished in 2009.

One of my favorites FCX may pullback with any market weakness. I hope it does, as this is a great long term play--but it has almost doubled over the short-run and I would like to see it pullback. If copper prices take a breather--this one could provide a buying opportunity.

Don't get fooled---INFLATION IS NEAR

The Energy Trade

I am trying to see what I can learn from the recent movement in the energy stocks. Does it point to inflation? I would submit that it does. Many will argue that the move in the energy commodities is only technical and there is no increasing demand for oil and gasoline. How many of you out there have canceled vacation plans this summer? While some have, many have not and I believe that we will see surprising demand this summer.

Stocks like RIG,DO,NOV, and XTO did very well yesterday. Many argue that we can't see demand pick up until after our economy starts to turn around. Is that true? Or can demand from China and India cause demand to rise while we are still in an economic downturn. I wrote about pockets of strength earlier in the week and believe that it is that concept that will shock some with the demand this summer.

I was and have been very wrong about Natural Gas. I just can't see natural gas staying at these low levels for very long. Lets face it, companies are still pulling gas out of the ground for 2 reasons---one they have to have continued cash flow and they are anticipating a turnaround in prices. Do you believe that they are rushing to put new production online right now? I think not. The cost of developing new sources outweighs the risk with prices at these levels. When demand does pick up---it will take some time for the production of new fields to come to pass. We could see rapid upside once demand picks up. It is not a matter of IF it is a matter of WHEN this happens.

Companies such as XTO are well run and have suffered at the hands of falling commodities prices. These are the companies that are poised to do well as inflation takes hold. This is not to say that they can't go lower in the short run---but the upside potential is appetizing to me!!

Many are arguing that the banks are going to contract credit and while I don't argue the point--I argue the impact. I recently had a card cut off simply because I had not used it in a couple of years. Did banks contract credit? Yes Was that credit really "in play"? Not at all. Actual economic impact of that company "bringing in" $8500 of available credit? ABSOLUTELY ZERO.

Inflation--Why is it So Misunderstood??

Yesterday I was the guest blogger at INO's Market Club. My post about inflation received far more than the recent average of comments on their site. There was some great debate in the comment section. I decided that I would post direct questions aimed to debunk the "deflation" argument and see what kind of responses we get. We want serious debate, not unrelated criticism so keep it focused.

1) Many have argued that every dime of TARP,TALF, Bailout, Handout will go to rebuild the banks balance sheets. If this is your position, is it also your position that we will not see any new lending for a long period of time? That banks will refuse to lend and hence seek to only generate revenue through fees?

2)Do you believe that wage pressure must be present first for there to be true inflation? (there was a comment to this effect yesterday on market club) If so, how would you explain the rise in oil, milk, and other prices last year during the beginning of the worst economic downturn in recent history?

3)Is it your position that none of the other areas of the massive government spending bill will have enough impact on our economy to increase the money multiplier?

4) Do you really believe that a rising money multiplier will not provide incentive for banks to begin lending again.

5)Do you believe that the current level of personal savings rate will increase over time? That fear will get worse? That individuals posses the power to contract the economy through savings while the government is borrowing and spending?

LET THE DEBATE BEGIN!!!!!!

INFLATION IS ON THE HORIZON----CASE CLOSED.....

ITS INFLATION!!!! CASE CLOSED

We have been exploring the inflation vs. deflation debate on our show for several months and while we have heard compelling arguments on both sides---we believe that we are headed for a period of massive inflation. Will most be surprised? Yes. Most of you know that at Stock Shotz, we take a common sense approach to the markets. So as we explored this debate we did a little unsophisticated research to assist with our analysis. We started by heading down to the local grocery store to see if the price of a gallon of milk, which was marked up almost daily as the price of oil increased last summer, had gone down in the same proportion as had a barrel of oil. Answer--NO.
What? No, but what about the argument that we are in a period of deflation? Isn't the demand for milk so sparse that they are dropping the price with each gallon? Not hardly.

This recession/depression has been one of "pockets". While many have lost their jobs, homes and more---there are segments of the population that have not had to make many adjustments in their purchasing habits. Many have argued on our show that all of the money being pumped into the system could not cause inflation because it was simply rebuilding the balance sheets of the banks--which had been decimated. But is that totally the case? I would argue no!!! Economist John Williams of Shadowstats.com argued this time last year (as oil prices were rising and many were talking inflation) that we had not seen the true effects of monetary inflation. He contended that we were seeing inflation caused by energy prices and not the first government stimulus or the dovish Federal Reserve Policy. I agree with Williams that the true effects of the increase in money supply have not surfaced yet. Lets look at this recession/depression a little deeper. This period has seen fear strike consumers like none other in my lifetime. Simply put, everybody is scared as they have seen their 401K's cut in half or more. People feel less wealthy. All of this action has the money multiplier at HISTORIC LOWS.

How can tax and spend, borrow and spend be anything but inflationary? What we are seeing now is not the rebuilding of the banks balance sheets, it is only a timing headfake. Inflation is just around the corner. The money that has been pumped into and is being pumped into the economy is STILL THERE. We are not seeing the massive inflationary effects because the money multiplier is so low---it has been below 1 and is now hovering right around the 1 level. These spending programs will cause the multiplier to rise and when it does--look out. Sadly enough--the inevitability of the increase in the money multiplier is not the only risk factor that we have for inflation. Most every economist will agree that Fed Funds rates of zero combined with MASSIVE GOVERNMENT BORROWING cannot result in anything but a weaker dollar over time. Yes, during this downturn, the dollar held its position as the world's reserve currency. It performed surprisingly well, but the ingredients are in the mix for a weaker dollar in the future. What happens when the dollar starts to decline? Oil will rise quickly. Throw in the fact that OPEC has been cutting production for quite sometime and there has been worldwide stimulus designed to get consumers spending again and we have a triple threat on the oil front--the weak dollar, production cuts, and demand that will most certainly increase.

Yes a GM bankruptcy will most likely press the pause button on the money multiplier increase, but it will not get anywhere near the stop button. When the fire of inflation is lit, it will be virtually impossible to extinguish. Does anyone believe that it will be politically popular to push for contractionary policy anytime soon on the heels of the worst recession that most of us have ever seen? No way, and if we don't get on top of inflation it will spiral out of control.