Short update. There is not much going on in the markets right now but I believe the Bear is about to emerge from his cage again. What is happening right now is called a Bear market rally. We came down a long way very quickly so now we are in the process of digesting that move. The optimists are " buying the dip " while the pessimists are " selling into the rally ". More importantly is where do we go from here. Here is how I see things developing.
THE DOLLAR: I think the dollar is on the very edge of a multi month rally. I places a small bet with UUP this week believing the dollar will go up from the mid 70's to the 90's. UUP is a bet the price of the dollar will rise.
BONDS: The price of US Treasuries has gone parabolic in recent months causing interest rates to fall to all time lows. This is unsustainable. I thing shorting US Treasuries is the trade of the century. There is no way of knowing exactly when but interest rates have to start rising and when they do the loss of principle on Government Bonds is going to be enormous. As you know from my previous posts I have taken a small position in TBT which is a bet the price of the Treasuries will fall.
STOCKS: Stocks will soon resume their decline. Once this consolidation ends the next stop for the Dow will be below 10.000, probably in the 9500 area. This will give the cheerleaders on CNBC and opportunity to hold even yet another Dow 10,000 party at some point in the future. When the break in the current rally takes place I will place a bet with DXD which is a bet the Dow will go down. I tried and failed to catch this latest rally with my bet on DDM but because of the extreme volatility with triple digit daily moves I got stopped out all three times with a small loss on each bet.
GOLD: Gold is an inverse of the dollar trade so I expect Gold to decline to the 1500 area as the dollar goes up. Anything below 1650 I will be placing bets on gold with the ETF fund DGL. I think 2200-2400 is a gimme in Gold and long term $5000 is not unreasonable. For now I'll wait for the pull back.
On the political front the Fed is pretty much out of bullets. Interest rates are at zero, a QEIII would have minimal effects as long term rates are already at 60 year lows and besides no one is applying for loans so that would be a waste of time. The Democrats and Republicans are in total grid lock so I don't think anything from Washington will emerge to help the situation. If Europe goes, and I think it will, the US will go down with it. My best guess is 2012 and 2013 will be the Depression we feared back in 2008 and 2009. We have kicked the can down the road for decades and now the can is kicking back. For those of you out there with CD's and local bank accounts I would take a long, hard look at their books. A lot of banks are going to fail and it wouldn't hurt to have some cash stuffed in the mattress.
What the US economy needs is a solid plan from the banking community. We all know the paper trail problem with mortgages & foreclosures. I know there has to be a way to work out new mortgages with troubled accounts that will ease the homeowner stress and build confidence back in the US.
ReplyDeleteBanking & other financial institutions need to work on being the turtle in the game of life. Slow and steady will win the race. We knew and saw and experienced what happened when they wanted to be the hare. It was fun for awhile but now we are all suffering for those poor decisions. If Warren Buffet can come up with bright ideas to sink big dollars in Bank of America while taking a bath I am sure other brilliant bean counters can do the same. Calgon, where are you?