Sunday, April 12, 2009


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.
blog comments powered by Disqus