Sunday, May 3, 2009

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.

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