Market Ruminations

WOW! What a week! After running around for the last year predicting the sky would fall a little piece of it fell. Things fell harder, faster and farther in a shorter period of time than I ever would have guessed. The last week has been positively breathtaking watching the melt down. In spite of the herculean efforts of the Propaganda Ministry to obfuscate and confuse the public here is a brief rundown on what happened and where we are right now. A year ago the Fed was pretty much out of bullets. They had previously bailed out the banks and lowered interest rates to zero. About a year ago the stock market was down about 17% so the fed came to the rescue of Wall Street. They did this with QE1 and QE2 which poured rivers of money into the coffers of the banks. The banks, in turn, poured the money into the stock market which kept the bubble inflated for the last year. The theory behind this was the " Trickle Down " theory whereby the rich get richer and the crumbs from their table trickle down to the middle class. Of course no such thing took place but it sounds good. They told the public that the banks would take the money and start making loans but that wasn't in the cards for the simple reason there is no demand for loans. In any event QE2 recently ended, the economy is weaker than thought and everyone decided to reprice the stock market to be more in line with the actual economy. I don't think this trip down is over but I do think we should get a decent rally in the short term and another leg down in the mid term. I think the final bottom this fall will be in the mid 9000's. I sold my Gold shares way too soon but I'm sort of like the Mafia in that I'll take my 10% and be happy. Here is my take on the market for the short term. 
GOLD: I think Gold is in a mini bubble of it's own and is a train wreck waiting to happen. Either that or Gold is predicting a monster collapse in the economy. For now I'll stick to my prediction that Gold will come down crashing down soon. Mid term Gold at $2200 an oz is a gimme and long term $5000 an oz. On the next pull back I'm going to load back up. 
THE DOW: I think the Dow has a nice rally in the cards for the short term but still has a long way to go before the bottom. I may try to catch another wave on this upleg and if I do I'll post it. 
OIL: Short term oil is headed down but if it even hints of a bottom I'm going to load up because the next leg up is $130 a bbl. 
BONDS: Bonds are way, way overextended and I'm just about ready to go short the bond market. Again, I'll keep you posted. 
The bottom line is today the Fed admitted the economy is worse than previously thought and getting worse. They also admitted there wasn't much they could do about it and tossed the ball back in the court of the White House and Congress. They also pretty much told everyone the economy is going to be lousy till at least 2013 or later. Through herculean effort we have become Japan with zombie banks and a non functioning government.