THE END OF "DEFLATION"

Consider this. If Chairman Bernanke is right and we will begin to recover by the end of this year, that has to mean that he believes that the deflation part of the cycle is DONE. To me the big question has always been will the Fed act quickly enough to quell inflation once the economy gets going again.

I believe that we are going to see a rally soon for several reasons. First, there is this pervasive belief on the street that we must see the financials lead us out. Any sign of strength in the financials will bring optimism. We have analyst like Dick Bove on The Kudlow Report last night really talking up the financials. He made a compelling case (I don't buy it one bit but it sounded good) that Bank of America was a good buy. In full disclosure, I must shamefully admit that I have BAC in my 401K. I am holding it as an option type vehicle, but don't have any confidence in its recovery. As the mainstream media puts out hype such as Bove's, we will see many individuals rush in as they are afraid to miss a great buying opportunity. This is where psychology will get small investors. They are afraid of missing something and will rush in and could get hammered. They will rush right back out if we make the next leg down. Finally, as we head into the weekend, I believe that the shorts will take profits and reduce risk as there is headline risk over the weekend.

I think this rally will hurt gold prices and present a good buying opportunity for those that have missed the trade to this point.

IF YOU BELIEVE THAT THERE IS A FUNDAMENTAL CATALYST THAT WILL DRIVE THIS MARKET HIGHER---PLEASE MAKE COMMENTS BELOW. WE BELIEVE IN LEARNING FROM EACH OTHER---BUT RIGHT NOW WE SEE INFLATION BEGINNING AND THE FUNDAMENTALS OF THE ECONOMY WEAKENING FURTHER.