Inflation or Deflation? YOU DECIDE!

I have been making the case for inflation and have gotten some very good arguments for deflation. I am not changing my stance---we are headed for inflation. The argument for deflation starts with the thought that the money supply is decreasing. How can the money supply be decreasing with a government that has decided to be the ultimate backstop? The money may be stalled at the current time, but be rest assured that all of this government money will make it through the system eventually. For those expecting it to show up immediately---it just won't work that way. That is why this situation is going to catch many by surprise.

The strong dollar argument always surfaces in the deflation camp---again a very short term phenomenon. Fortunately we have been in a short but meaningful cycle of the strengthening dollar pushing down the price of oil. I ask one simple question. Can the dollar stay strong over the next 2 years given the rate at which the government has been printing money? No it can't! Can oil prices decline if the dollar starts to decline? No! So we can interpret that we are most certainly headed for a weaker dollar and rising commodity prices.

Finally there are those that will argue that we have lost so much money with the recent declines in the stock market. Again based on what is about to happen in Washington, this decline will be short lived in terms of what we see with money supply. Those that take the tax hit will save and invest less and their money will be given to the lower income brackets who will spend it. Remember tax and spend always seems to work over the short run because it will kick start the economy. It will help to reduce unemployment as new dollars in effect are not saved but are spent. I don't buy the argument that the credit card defaults are going to cause deflation. This society is addicted to credit and most people will spend again as soon as they get a little room on their credit line.

Granted it may take 2 years for my scenario to develop , but it most certainly will!!

I do believe that we may test the lows tomorrow. I can't find any compelling reason to buy stocks. Given my inflation thesis, I think XTO is a gift under $30 and it may drop below it tomorrow. FLR is a gift right here. I think everyone selling this stock below $40 is just plain stupid. Not only are these guys blowing out earnings and revenue estimates---they should benefit from the incoming administration. UNG may well drop again tomorrow and will be another gift if you are willing to hold it for a while. If we drop below 7950 on the Dow tomorrow it could be on of the worst days in years--and years. If we bounce we could see a very nice rally---but if we don't expect bloodshed. I am watching and waiting and have no plans to commit much new capital. If we drop below the October lows I will play the SDS and DXD with tight stops. Those are the short ETF's on the S&P and the DOW.

INFLATION IS ON THE WAY!!!

Critical Week Upcoming

We are hearing both the "bottoming process" camp and the "nowhere near the bottom" camp state their case this weekend. Many are encouraged that we bounced so hard off of 7950 on the down on Thursday. Others are looking at the fact that we couldn't hold gains on Friday as a sign that we will retest the lows and likely break through them. We will most likely find out who is right this week and I hope the bulls are. Nevertheless, I have done more research and feel that my inflation call is on target.

I have received many emailed opinions as to why my inflation call is wrong---so let me further detail my thoughts. Now many in the deflation camp have said that wealth has disappeared as investors have lost wealth in the markets and that will not only mitigate inflation, but cause deflation. Those same individuals further argue that as companies default on loans you have the same deflationary effect. Now here is my issue, the government has stepped up to fill this gaps with all of the taxpayer money. So while we will have the deflationary effect we are currently seeing----it will be short-lived. The government printing presses are running at full speed and even though they haven't kept up with declining wealth on a daily basis, they will catch up and cause hyperinflation.

For those of you that have heard our interviews with John Williams you have heard him talk about the government's plunge protection team---which is charged with the task of making sure that our markets don't collapse. Has the plunge protection team strengthened the dollar? Have they forced down the price of oil? If they have, then you better enjoy it while it lasts, because it will be short in duration. How can we add all of this money into the economy without it causing inflation? As we tax the rich and give credits to the lower income earning individuals, this will further compound the immediate problem. Why? Because much of the money that will be coming out of the pockets of the higher earners was going into savings or into the stock market. The money that is going to the lower income individuals will be spent. Real dollars out of savings and into the economy----spells inflation in my book.

Some have argued that we are going into debt and that borrowed funds will only be inflationary if other countries quit buying our debt. Their argument further centers around the fact that the government is borrowing funds at record low interest rates as investors seek the safest investments they can find. I argue that it doesn't matter where the money is coming from or how low the rates are, it is going into the economy. That is exactly why I have argued that deficits are not bad for the economy in the short run. These deficits are going to get the economy humming again---with the cost being inflation.

So are there any other factors that we should be taking a look at right now? I think so. Are you aware that many baby boomers are being forced to take distributions out of their 401k accounts? Forced selling at unfavorable prices. We must think about this phenomenon as we go forward. The very group that has been helping the market over the past 10 years by making regular contributions that wind up holding stocks either directly or through mutual funds. So now as we tax the higher earners in the economy we further punish the markets. All of these factors are why I am using patience as natural gas has declined. I don't mean to be boring when I constantly talk about oil, natural gas, and gold. If you like stocks its FLR,XTO, FCX. Will I change my tune anytime soon? I will for the short and medium term investments when we get some clarity. But I keep drilling the inflation story for the long term because I believe that it is almost certain.

If you have an argument for deflation, please post it in the comment section. We will be happy to discuss it.

Counter Trend Rally?

Today is the kind of day that you would make you think we have found the bottom and have many brighter days ahead. I really enjoyed seeing the action today and will admit that we didn't see much selling into close. Several of my stocks closed on the highs of the day. There are several reasons that I am not overly excited tonight. First, we have seen big swings to the upside and have not gotten the follow through. If it does not hold tomorrow and Monday, we could be right back testing the October lows.

I appreciate the comments/emails that we received on last nights post. I have said over and over that the best way to stay on top of this game is to listen to what others are thinking. We got several interesting comments on Market Guru and one was saying that we are really in an deflationary mode. I don't disagree that we might see some deflation in the short run, but do you honestly think that we will see sustained inflation with gas at Pre Hurricane Katrina levels. I would like to think that many of us have changed our spending habits, but it is just not the case. As soon as we can get more credit, we will be right back out there buying items that we cannot afford. Isn't that what started this mess? Did we really learn our lesson? I don't think so. When you get November oil/gasoline consumption numbers, I'll almost guarantee that they will be on the rise.

Another reason that I am not jumping for joy is that we are not getting any leadership from the financial stocks. I believe that a major part of our rebound will be restoration of confidence in the financial stocks. Everyone knows that the integrity of our financial system is an absolute must for our economy to go forward. In this downturn, we stayed at the top of the heap in terms of the world economies because we have a strong developed financial system. The recent world actions proved that even in its darkest hour, our financial system is the most trustworthy in the world.I can't wait until January because I think with every passing day Paulson is hurting our position as he plays bait switch lie and bailout the buddies. I thought he would be on of the greatest in history when he was appointed. I WAS WRONG!!!

I am looking at a possible short on Chattem CHTT. I think the multiple on this one is overdone. It is good company, no doubt--but it enjoyed a better than average multiple. They are a consumer products company and have gotten a better than average multiple during the recent weakness in the economy. With its current multiple around 20, I don't see the growth supporting that multiple. My target this one is around 62.

For those of you that have argued that we are seeing deflation as opposed to inflation I ask you this question--Can the dollar stay strong given the level of debt we are taking on in this country? Especially with Hank the Liar trying to revive credit card debt. What happens if the dollar falls? Does oil go up?

I still like Fluor FLR even though I think you might have to be patient with it. I am planning on this one being a 4 bagger for me. XTO is still on my favorite list.

I am not rushing to make any new trades tomorrow. I want to see follow through, but am not confident enough to commit any new capital.

PAULSON LIED!!!

I am absolutely sick of politicians sacrificing our future. Hank "Liar" Paulson came out today and said that we wouldn't use the 700 Billion to buy the troubled mortgages, rather we would buy credit card debt to get those markets unfrozen. When we got the bailout Hammerin Hank was telling us that we had days to unfreeze the credit markets and bring LIBOR down. Now with LIBOR well under control and the markets not responding he wants to buy CREDIT CARD DEBT. What happened to that sense of urgency? Days? Wasn't the whole idea to ultimately help the housing market? Now good ole Hank wants to give the American Consumer more access to MORE CREDIT CARD DEBT---JUST WHAT WE NEED. The American system has been the greatest in the world because we WERE TRUSTWORTHY. We have lost that precious trust. We are becoming socialist by the day and the is going to be terrible for our markets. I believe that we will test 7800 on the Dow tomorrow. If it holds, that is good---but if it does not then we are headed to 7500 and on to 7000.

THIS GOVERNMENT IS OUT OF CONTROL!!!!! WRITE YOUR CONGRESSPERSON AND TELL THEM THAT YOU DON'T WANT YOUR FUTURE MORTGAGED!!!!

So do I think any investments are worth making at this point. Yes I do and you may buy them cheaper. I still like oil, gold, and natural gas.

CONSIDER THIS----These markets are so irrational. It seems that everything that correlated in the past in no longer correlated. I have never been a conspiracy theorist, but I do have a theory on the price of oil. Looking at what we do know--we know that stimulus plans, bailouts, and dovish monetary policy all lead to inflation. The government is borrowing money like nobody's business. During one of my interviews with Mr. Peter Schiff he said that the government might have to inflate their way out of debt. Excellent point. Is the government using its power and money (with Investment Banker Paulson at the helm) to prop up the dollar? Now we know that if they prop up the dollar while simultaneously scaring the U.S. Consumer, then wouldn't they get their borrowed funds at a much cheaper rate? There is so much demand at these government auctions (because there is a flight to safety) that the interest rates that the government will wind up paying are TREMENDOUSLY LOW. Was this in the initial plan? Get the rates lower with fear and then attempt to control the inflation on the back end? Lower rates---less inflation necessary to inflate your way out of the debt. So if that is what the government is doing what is the end game and how will that impact oil prices? When the government gets through borrowing---and it might be a while since we are planning to help pay for all of the dumb labor contracts that Detroit has had for the past several decades---they will want the deflation spiral to stop and stop rapidly. That is when we will see the dollar begin to decline---AND THEN THE DEATH SPIRAL OF RAPIDLY RISING OIL PRICES BEGINS AS WELL. Remember what was happening in June of this year. Dollar down because oil up and oil up more because dollar down? That sounds silly, but it was that bad a mere 4-5 months ago. This time oil will hit $200 and even more. Natural Gas will spike as will gold. Again, I am the last on to jump on the "conspiracy" bandwagon, but let me know why you think my ideas are far fetched.

Another thought behind my conspiracy theory is the point at which we see oil demand destruction/rebound. Now we really didn't see much demand destruction until oil got over $105 per barrel. Why at $70 didn't we begin to see a rebound in demand? Is there a $35 dollar disconnect between the point where demand begins to erode and where it begins to rebound. Don't give me the unemployment answer because the U.S economy is still 93% EMPLOYED. Why the disconnect? Is it consumer confidence? If it is what happens when that begins to return? Inflation will heat up much faster than most expect. With confidence rising, I would argue that we would not see demand destruction until we hit the $110 level. BY THEN IT WILL BE TOO LATE. With oil at these levels, companies are not going to allocate every available dollar to increased production and it will take them longer to ramp up those expenditure than it did to cut them back. We need oil back over $80 so we don't see so much of the planned production coming off line.

I don't doubt that tomorrow will be an awful day for the energy complex and I think you can buy it cheaper in the coming weeks. BUT INFLATION IS COMING. YOU HEARD IT FROM THE CREW AT STOCK SHOTZ FIRST. DON'T WORRY ABOUT THIS SHORT TERM DEFLATION.

INFLATION IS ON THE WAY.

LEARNING FROM A LEGEND

For those of you that are new to our site, the post directly below this one contains our interview with Legendary investor Jim Rogers. I posted the interview because I have been reviewing what he said and how I can profit from it. Having listened to Jim for years on television shows such as the Fox Business block, I know that he develops his thesis and is patient. He was pounding the table to short Fannie Mae a couple of years before the stock really started to rapidly decline.

I listened to the interview again and he is very clear that the government bailouts will cause inflation. He is also clear that over the long term more demand for oil will be coming online than will supply. I questioned him about some of the speculation that oil would return to $70 and while he didn't seem to think that it would happen, he didn't rule it out and looked at it as an opportunity if it did materialize. So what do I do with my money here? I have bought natural gas (which hammered me today) and am looking to pick my spot with oil. I think it may get a little cheaper, but I will be buying some soon even if it doesn't. I was discussing the short term "deflation" that we are seeing with a fellow trader. We both agreed that this is a short-term phenomenon---but just what is short-term? A quarter? A year? 18 months? Regardless of the exact timing we believe that we must rely on what we know and we know that the bailouts/rate cuts and much more are going to contribute to inflation over the long term.

For the short run, we don't have a lot of geopolitical risk, nor do we have a big currency risk, so I don't expect to see a huge run---especially given the fact that we didn't get a boost from the Chinese stimulus plan. I know that I can't call the exact bottom, but I do feel that we are going up over the long term and am trying to construct a list of indicators that will help me see when the real run starts.

I believe that we will see some of the agriculture plays begin to deliver. One of my favorites is Compass Mineral (CMP). It is a very well run company that has been able to pass through price increases virtually anytime they have desired.

I do like the coal etf KOL. I saw some headline that was talking about the decline in energy consumption in China. It was relatively minor and again we have had some short term confidence crises all over the world. When analyzing whether or not KOL is a good play I ask 2 questions. Is worldwide demand for electricity going to substantially decrease? Have we found a truly economical alternative for coal that can be implemented in a short period of time? If the answer to both of these questions is no (and it is in my mind), then KOL looks attractive as we pull out of this deflationary period.

If you are new to our site, please subscribe to our RSS feed. The more subscribers we get, the more interviews we will do. Our subscriptions hit an all time high this week, so thanks for all of your support.

Jim Rogers Called It!!!

Back in the spring we talked to Mr. Jim Rogers on several occasions and he knew what was coming. He was short the investment banks and was getting out of the U.S. Markets. I am posting the May interview again and we will have discussion on the site as to what we can learn from this and how we can use perspectives to help us to navigate the next 6 months. And we hope to get Jim back on the show soon.

THANK YOU CHINA!!!!

China announced a $580+ billion dollar bailout today. This has the futures moving up as are the Asian markets. Why will a Chinese bailout work better than the domestic ones we have seen? It is simple. China has been running surpluses and needs the infrastructure part of their bailout anyway. I was very pleased to see their plan, especially in light of the fact that I have been positioning my portfolio believing that the global growth story was not over. I am very pleased with FLR and expect that it could hit $100 in the next 12 months. I know that is an aggressive call, but the company is still delivering records with each quarter and if the global growth picks up--they should really move up rapidly.

Another favorite of mine XTO Energy (XTO) is poised to benefit from the Chinese Plan. Oil jumped to $64 in the current overseas session. I heard Karen Finerman of Fast Money suggest that the USO (the oil exchange traded fund) be used as a hedge if you wanted to play certain commodities stocks. Specifically she was discussing someone's bullish call on U.S Steel (X) and suggested that you hedge that play with a short on USO. I think we will see oil be used as a hedge---I have even suggested that it is a better hedge against inflation than is gold. If the dollar starts to weaken, we will most certainly see oil move up and these that are on the short side are going to get caught. My guess is that many of the momentum players have been jumping in to short oil, and the rally off of this stimulus could take us back over $80.

Upcoming Interviews

We will be interviewing Walter "John" Williams of shadowstats.com John has been one of our most popular guests and will give his perspectives on the long-term outlook for inflation. I am very anxious to hear what John thinks the impact of all of these government bailouts will be on inflation over the next few years.

We are also so fortunate to have Hitha Prabhakar coming back to our show. She has a great handle on what is going on in retail. When she was on our show a couple of months ago, her calls were right on the money. I am anxious to see what she has to say about the upcoming Christmas Shopping Season.

We are spending the weekend looking for "pairs" trades that fit our model and should have more posts tonight.

THE CRASH IS COMING!!!!!

We are printing money right and left and now we are going to bailout the auto industry. We are throwing our future away and are turning our head to the prospect of inflation. I can't believe that we are destroying our dollar as we are. I have worked my portfolio over and am adding to natural gas and the companies in that space. My FLR reported blowout earnings and record backlog for the quarter and the stock is up a measly 9% in the after hours. Global demand for a company like FLR has not fallen as most would have you believe. Oil and Gas are coming back and inflation is going to go wild. Gold at these levels is so cheap if you have a long term horizon. Read my post from last night for my projections for gold.

I have been buying XTO energy and it has hurt me over the past few days. I think it is going to be a big winner. I am considering buying more and I do not usually believe in dollar cost averaging. This company fits the perfect profile a winner in my long term view of what is going to happen with our economy and the global economy.

For those of you that have sent emails asking if I have changed my mind as not long ago I was saying that our way of life was not going to cease to exist---Yes in certain areas I have changed my mind over the past few days. We are going to see bigger government and that is going to lead to inflation. If inflation gets going on the global scale how are we going to fight it with our economy in its current state. So one might ask how I think that global inflation can get moving without the U.S. economy rebounding first. The answer is that we are discounting the growth of underdeveloped nations. The average Chinese worker saves 35 cents of every dollar that they earned as compared to the 2 cents of every dollar saved by the U.S. worker. The Chinese are still developing their country to get clean water to their citizens. They must have cleaner air and they must have it now. While we can pull back our spending in tough times and not take as many vacations and buy as many big screen televisions etc---their economy is going to keep chugging along as they continue to purchase the basics to build their economy. They won't cut out nearly as many luxuries as they never had them. Hence, oil, steel, copper, gas and more are going to be in demand. Sound likes all of the ingredients for inflation to me.

In summary, I am only buying stocks that are either energy or metal related. I will have a longer analysis later.

DOW 5000

If we get policy out of some of the rhetoric that we have heard in the last 24 hours we are going to see DOW 5000. I have been studying what is going on in China for quite some time and must admit that I have been wrong on their markets as I really believed that their markets would bounce back much faster. China is going through the normal market gyrations that you would expect to see with financial markets that are really still in the infant stage. Yes they are going to be susceptible to the U.S. markets---but what about the economy behind those markets? The economy over there is still going to grow. Now there government has huge surpluses and our goverment is running a huge defecit. Let me say this--DEFECITS IN AND OF THEMSELVES ARE NOT NECESSARILY BAD. No that was not a typo. A defecit that is financed with cheap money is not bad. The problem comes in when the cost of credit gets higher. So practically I see that our defecits to this point have not been all that bad, but if we get into a longer recession and possibly a depression---and the defecits widen during that time frame and they most certainly will under the Democrats. Do I have a point? Yes, if China doesn't continue to fund our debt at cheap levels, then our markets are in trouble. If we move toward Socialism then we can't continue to generate low interest rates that we currently enjoy on our debt.

So in summary after those ramblings, here is my thesis. We are going to see our cost of credit go up over the next 24 months. China is going to continue to consume goods and their financial markets are going to continue to develop and become better and safer investments. Less money pouring into the U.S. safe haven government bonds--even higher cost of credit for the U.S. government. Higher taxes slow down the small businesses and government needs more money to stimulate the economy. All the while China and India continue to consume. Inflation goes crazy. Gold will surpass $1100 per ounce by July 2009 and $2500 by January of 2011. The Dow will test 8400 again by the end of this year and will test 7700 during the first quarter of 2009. Deleveraging has given every one the false idea that inflation is totally at bay. Trust me this will be a short term phenonmenon and inflation will be back on the radar screen and will cause interest rate hikes before the end of 2009. The dollar will begin to weaken and the dreaded economy killer (Oil) will begin to ramp up again. I believe that we will see oil prices back to $125 by June of 2009. I believe that some time during 2010 we will see oil touch $200 per barrel and natural gas at $15/mcf. If this wheel begins to spin it will cause the DOW to go into a massive downward spiral like a slow moving cancer that just eats away at the core organs before you know what has hit you.

Tax and spend has never---and I challenge anyone to find proof that I am wrong---tax and spend has NEVER EVER made an economy more EFFICIENT. It hasn't, it won't, and it never will. Will a stimulus package help retail numbers for a period of time? Yes. Will it last? No. Families need to get more efficient with their personal spending and the government can't make families more efficient without creating jobs that last.

I will play the energy and gold plays and the heck with everything else.

STAY SAFE AND CONSERVE CAPITAL.

How to Trade the Vote?

I like the infrastructure plays and obviously my favorite is FLR. Other than that I am looking to potentially get short. I think Wall Street is headed for more regulation and I think that will be negative in the long run. Not to mention that this rally has been pretty sharp and volume was not that great. I am cautious with regard to some of my dividend paying favorites until we see how any new tax policies are going to impact those stocks. I am considering selling my domestic tobacco dividend generator MO. It is almost a given that we are going to see higher tobacco taxes to fund the Children's Health Insurance Program. Fundamentally and ethically I have no problem with those higher taxes---but it may very well impact MO to the downside.

I like gold,oil,and natural gas.

More later.

The next 10%

Is the next 10% up or down? I believe that we are going to see some stabilization and upward movement between now and the end of the year. I do however see some terrible things on the horizon if we keep this stimulus talk up. Both the Republicans and the Democrats have gotten this thing wrong. I said before the bailout--and I stand by it--that we had to have the banking/credit bailout to save our banking system. We don't need some timeout for people that aren't paying their mortgages. We have to quit trying to mitigate the recession. We needed to stop the collapse of our financial system and we have done that. We need to quit with the bailout/stimulus/handout/socialism NOW!!! We are going to create rampant inflation and now I am looking at GOLD. I think the fear premium is coming out of gold and I want to get in before the correct inflation premium is priced in. I prefer to play gold through FCX which is not a pure play. The pure play is GLD and I am looking at that one as well.

Where most people that correctly called the downward move in the economy ultimately got their plays wrong was that they assumed that the dollar would be destroyed. They missed on that call and we are seeing major strength in the dollar. So how do you play the socialism movement? With inflation hedges. The dollar is still positioned such that as the U.S. economy gets hit---it will SLAM other economies and markets. I think this phenomenon will continue for quite some time so I am turning my attention to playing the inflation that will most certainly arrive.

Will dividend stocks take a hit if the Democrats take office? Will increasing the dividend tax hurt those stocks in the short term? We are seeing some awesome yields paid on some traditionally strong stocks such as WRI and DRE? If there were not potential tax implications on the horizon, I would be buying those stocks right now. I am going to be researching this issue this weekend because I believe that commercial real estate will rebound in this country because the consumer is still out there shopping.

We have a couple of interviews that will be posted soon! STAY TUNED

Bull Market?

I am beginning to like what I am seeing with the trading of these markets. The futures are up nicely and I think there are still some real values out there.

Lets take one that I have been wrong on for quite some time. ICOC has been cut to below $4. This is a great little stock that has traded well over 10. They started getting hammered when oil prices headed up over $100. They have not seen any rebound as a result of the drop in oil prices and I believe that they will start to show improving earnings.

Northern Trust NTRS traded nicely today and then just fell right at the last minute. I believe this one will be trading over $75 within 18 months. They are strong and if they go much lower---any number of companies should be looking at them as a takeover candidate.

I said that I wanted to see an extension of the Tuesday rally and we just couldn't hold it. I think we may be poised to add to it tomorrow. We are seeing most central banks around the world join the rate lowering party and I beleive that this will get the global economy firing on all cylinders in the very near term. The one thing I do know is that the stock market will rebound sharply before we see improvement in the economic indicators. I don't want to miss the move and am considering allocating some of my cash to equities if we see a rally tomorrow.

I have mentioned Stericycle SRCL before and think this thing is headed to $80. In short, I believe they are a very well run company that has a history of making the right acquisitions and doing a good job of integration. There is going to be plenty of Medical Waste in the coming years and I don't see any relaxation of the regulations governing the handling of that waste. SRCL benefits from handling that waste---enough said.

Tomorrow is key. We need to open strong and finish strong. If we don't---I will have a different attitude tomorrow night!

Direction Change or Relief Rally?

I hope that today is the start of a changing of direction---but I am not convinced. You can't make money on hope. I will say that I have not posted because I traveled to Dallas Texas this weekend. Let me tell you that the good folks in Dallas are still out spending money. There might be a slowdown---but there were a lot of people moving around in gasoline burning automobiles and there were long lines at the restaurants. As I have said over and over--this is a recession, but it is not the end of the world as we know it. I think we may retest the lows again, but I believe that we are in the bottoming process.

So who stands to benefit from the current situation? I have to add VLO to the top of my list. Even after an impressive jump today, it still trades at below 17. I can't see them getting hit much harder than they have already been hit---oh and with the price of oil going down most days---the crack spreads are going to increase which will help their margins. Yes, I know the argument is that demand is down, but I will take increasing margins in an improving marketplace any day.

I have mentioned FCX and I really like this one as a buy-and-forget-about-it. It may go down in the short run, but this one is well run and will deliver over time. It appears to have priced in virtual global collapse. I don't think it will stay this low for very long.

I hope we see some follow through tomorrow. Follow through has been tough to find lately and we so desperately need it. I think we get a rally after the election regardless of the winner.

The dollar is strong and that should help with consumer goods prices.

I am doing research fast and furious and will update as I find good ideas!

Where Are The Critics of Speculation Now??

When oil was over $120 there were so many that were out blaming the speculators. Now that we are seeing massive moves to the downside no one cares. Speculation works both ways and there are many short oil and the mainstream media chooses to focus on something else. Fear sells best and titles like ECONOMIC CRISIS draw more viewers.

Everyone thought we were headed down 1000 pts on the Dow yesterday. I must admit that it looked bleak in the premarket. I wanted us to test 7900 and bounce hard. Now we are hearing those that say we haven't truly had capitulation yet and we are headed to the downside for a lot more pain. Earnings are getting hit, but at some point the market will lead us out of this mess. Stocks will turn up before the economy does that is for sure. I think we will start to make improvements in stabilization on Nov 5th regardless of who wins the election. We will have a much clearer picture of what will be facing us once a winner is declared.

People seem to be missing the fact that fuel prices are below where they were a year ago and corporate balance sheets for the most part are healthy. As investors we tend to think everyone had as bad management as did some of the failed companies. The reality is that many companies have been executing very well during these hard times and have actually improved their balance sheets. I like Sanofi---but in full disclosure I liked it at $47 when I bought it. I do think they have a great pipeline and will deliver results in any economy.

I will discuss many opportunities later---but right now have to go to my cousins wedding.

More later

Lows Lows and More Lows

Are we headed for a depression? I was hanging my hat on earnings and many have been dismal. I actually liked most of what I heard from Seagate STX, yet the stock dropped like a rock after the report. I cannot believe that oil has fallen to these levels. For those of you that have been following the site for a while, you know I talked about being amazed that the market was going up when oil was steadily climbing over $100. I am just as perplexed at the moves on the downside with oil. So the question is---if the positive move in stocks in the face of rising oil was a sign that oil was overdone to the upside---are falling stocks a sign that oil is going to recover? This is kinda the which came first the chicken or the egg question. Commodities are getting slammed and everyone is claiming that it is due to the global slowdown. The credit markets are SLOWLY healing. When do the falling commodities prices jump start the economy? Are all of the consumers bankrupt? Is everyone upside down in their house? I am trying to play the moderation card here, but you simply can't fight the market on days like today. I can't wait for FLR to report their earnings. I just don't see them being that bad.

I think we are headed to 7900 again on the Dow and if we break below 7800 we are in a world of hurt. We could see 6500 if we break below 7800. I don't think we will, but stranger things have happened over the past couple of months. I personally saw some good things in the STX report and the T report. I thought it was silly that the street punished T for their earnings. If you read the fine print--it seemed that their larger than expected expenses came from the i-phone. To me that ultimately means that they are building a large---potentially loyal base of new customers---hardly something to punish a company over. But these days it fashionable to sell first and ask questions later.

Many of you have emailed and asked--or laughed at how hard the Chinese market is getting hit. I agree that they have been hit hard, but the question is have they done a better job of letting the free markets work than we have? Has the more socialist of the countries acted with more respect to free markets than the leaders of the free world? If they have, then they are poised to recover faster one would have to think.

So where do you go with your money now? Gold? Stocks? The Mattress?
I am selectively looking at stocks just as I have said in my last few posts. I will watch the overall market and have my list ready. I will add about 25% more exposure to equities if we test 7900 and bounce. If we break 7800----I am going all cash.

Settling Down??

LIBOR is going down this morning and we are seeing some decent earnings. I have my list ready and will buy today if we get a pullback. I hope we get pullback today and start to settle down to some more reasonable daily trading ranges. I had a family emergency last night as my grandmother fell, so my post is short today. Hopefully I will have a regular post tonight.

Earnings???

I have been making a larger wish list over the weekend as I am becoming more convinced that all of the interventions are going to unclog the credit markets. When credit improves, confidence will improve and we will get back to fundamentals such as EARNINGS. Now I don't doubt that we are going to see weaker revenue numbers because we are in a recession, but don't forget that we may see better than expected margins because of the falling commodities prices. The commodities fall has taken a back seat in the mainstream media to the ECONOMIC CRISIS. I know why---that story doesn't sell as much fear and air time as does the falling commodities. These falling prices will serve as a "tax relief" to both consumers and corporations. I was much more concerned about the changing consumer habits with the daily threat of increasing gasoline prices. The consumer forgets quickly and soon that fear will be gone and many will be back to spending every penny of each paycheck.

Will we ever see some companies at these low levels again. U.S. Steel at 4X earnings? Yes I know the argument is that earnings will fall, but see the first paragraph. In the steel industry sales will fall, but margins will improve as input costs per unit are lower. I am putting X on my watch list. Along the same lines, how can a good firm like VLO still be at these low levels given the fact that their margins most certainly will improve? When oil was going higher every day, the crack spreads (the margin for refining) were getting squeezed and we heard a lot about it in the mainstream mayhem. Anybody heard about a lack of pressure on the crack spreads with the rapidly declining price of oil? I haven't, but just because the mainstream guys aren't telling you about it doesn't mean that it isn't happening.

I think we are going to see the fear premimum unwind out of gold in the next couple of months, making gold a good long term play. That said, I can't fathom why FCX is still at low levels. Gold as an investment will be much better when the panic buyers are out of it some sense of normalcy is restored. I like gold over the long haul.

The commodities plays have been overdone to the downside. It is a generational issue. Recent generations are going to live longer and are much more spoiled to the "good life" than were our ancestors. We are going to continue to spend money and worry about saving later. Oh and those emerging countries China and India are raising generation that will be the same way. The global slowdown will be less than 2 years and then we will be rocking and rolling at a faster pace than ever before. You can expect to get back in the commodity bull mode sooner rather than later. People are going to eat, and they are going to have houses. It is that simple.

All that said, we may see some short term volatility. Hang on.

Panic Slowing?

If you ask me panic is beginning to slow down. We all know that stocks will turn before the economy does. I believe that we are seeing the beginnings of the effects of the interventions. The gold premium is going down. People are going to realize that even a global recession is not the end of the world. Am I calling a bottom? No, but it feels like we are getting close. The thing that I think we must accept is that we are in a very different trading environment. Bigger intraday swings are going to be a part of life for quite some time. With every environmental change comes opportunity. I have seen some crazy swing in normally boring old stocks.

I must say that I am expecting a bounce in commodities. I am still holding UNG and was pleased with the action there today. I believe that it was slammed as we delevered. I think as winter approaches and we see that people are in fact going to turn the heat on in their homes---even during a recession---gas should bounce back.

I am making my shopping list of securities. XTO has to come to the top of the list if you believe in the natural gas and energy play and I do. I mentioned Federal Express FDX last night. I also like Stericycle SRCL and Airgas ARG. Again, this is my watch list right now. I have not bought any of these yet.

I am so amazed as the talking heads on televisions are telling people things such as "Growth will be slower in the U.S. for a couple of years" Yes, but growth is good. When you are coming out of a recession, slow growth is better than no growth or contraction. We need to have this recession. It is good. As Jim Rogers said "We need to start over from a sound base."

Another stock I have watched (and I am glad I didn't pull the trigger) is Jones Lang Lasalle JLL. I have been shocked that this stock has been hit so hard. I think they are a very well run company and should be worth more.

Any Good Signs???

There are good things happening. Look at commodity prices---we are seeing no sign of inflation at this point. Now I know that many of you will contend that it is right over the horizon, but the falling oil prices are going to help the economy. This is the equivalent of a tax cut over the prices of the last quarter (which most working Americans had no choice but to immediately adjust to). Gold is not spiking which tells me that the panic is not as bad as it was the last day we were down over 500 points. Now I am not calling today a good day, but I see better signs than I did a couple of weeks ago.

I am now watching Federal Express FDX. This is a well run company that got slammed today because of worry about the global slowdown. Did the traders run for the door on this one when they got there margin calls? Were the sellers accurately forecasting the help this company will get from falling fuel prices? I think this one got overdone to the downside today. It may have further to fall if we see more forced liquidation, but over the long haul I think this one heads higher.

I like hearing the mainstream media talking about a LONG DEEP RECESSION AND EVEN DEPRESSION. The more they hammer this point home, the more it gets factored in on the downside and gives us opportunity to profit. Yes this will be a longer deeper slowdown, but it is not a shutdown. We have factored a lot of the recession in already. I am making my list, but am not anywhere near ready to plunge in full force yet. Sit back and watch---the only guarantee is VOLATILITY.