Monday, April 6, 2009

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
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