Thursday, February 5, 2009


I think we are going to see a rally unless the employment numbers tomorrow are extremely bad. I have heard more chatter about a rally from the so-called "experts" for the past few days and I must admit that today's action looked like a short-term rally would be imminent. I still believe that we are in a long term downtrend and will plan my trades accordingly.

If I said I was anything less than shocked at the action of the Dollar, I would be lying. I said this morning that I thought the dollar would hold up for a while---but it ran today much more than I expected. I contend that this is terrible for many companies and could complicate any signs of recovery. I heard a commentator on a MM show say "The government is going to come through and when they do we are going to rally IN A BIG WAY" Now how many times over the past few months have we had a rally based on some government action only to lose it in a hurry? Have we already adopted such a socialist mindset that we really believe that we have to look to the government for "fixes"? Please, this is the worst thing possible. This so-called stimulus is a joke that is just going to devalue our currency. Regardless of whether you favor John Williams opinion that we are headed to hyperinflation or Mish Shedlock at the other end of the spectrum with deflation---you must admit that reliance on the government is THE WRONG MINDSET. That mindset will continue to produce suckers rallies and I will prepare to short them. I am licking my chops at the thought of a huge rally tomorrow. If we get one, I will be looking to add to my RNT short and also look to short SPY and possibly AMZN. I will let the rally cool a little and might not place the trades until the first part of next week depending on the strength. Many contend that there is a lot of money on the sidelines that is just waiting to pour into the market. I hope so.

So would I purchase any stocks in a rally. Yes, I am looking at Visa (V), Chicago Mercantile (CME), MMP, and GHL as potential plays. I will have a traders mentality with these stocks and will try to not hold anything overnight. I will take what the market gives and if I don't get the proper setup, I certainly will not force a trade in any of these names.

Has anyone noticed that action in the double short dollar UDN? It has been very strange. As the dollar makes strong moves upward, one would think that the UDN would get hammered. This thing has held in remarkably well. Tell you that people are willing to be patient with their short dollar play? That is exactly how I am interpreting this action. It also tells me that many of the dollar shorts are very strong in their beliefs in that trade. I don't think we are going to see the dollar fall anytime soon, but as long as this position is not moving too far against me, I am quite content to sit still and wait on my thesis to prove correct.

I think the employment numbers will be terrible tomorrow and it will be very interesting to see how the market digests those numbers. I still believe that gold is headed to $1000 in the near term and the numbers tomorrow could put it close. So how do I think the market will react? I honestly don't know. I think we see a rally if the numbers are anywhere close to expectations, but this market makes me more humble by the day.

Every time I hear some talking head on TV say "We are beginning to see the credit markets thaw" I think of what will happen when credit actually flows again and the money multiplier begins to rise. I can't see how one can argue only reflation with the trillion dollar government handout on the horizon. Unless of course we see more line items like the millions for free digital TV converter boxes. The people receiving them may well never need them as when inflation takes hold they may not be able to afford the electricity to plug their television in. Of course that could lead to more stimulus---and MORE INFLATION. We will have a couple of great shows coming soon!!
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