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September 7, 2011

 The Greatest Trifecta Ever?

I’m not even really sure what a Trifecta is, except that it is a bet on 3 different animals…At any rate, my three animals are Buy Stocks, Short Treasury Bonds and Short Gold.

I don’t think I have ever seen these three markets so loudly and emotionally lined up as they are now. What I mean is, during the last month or so, they have all gone relatively nuts as expressed by the following numbers:

Treasuries rallied 15 POINTS IN 15 TRADING DAYS, wacked around, then rallied 7 POINTS IN 4 DAYS.

Gold rallied $280 AN OUNCE AT THE SAME TIME, also wacked around, then rallied OVER $200 IN 9 DAYS.

The Dow fell 2150 POINTS (17%) IN 14 TRADING DAYS and has since been MAKING 500-700 POINT SWINGS ON A WEEKLY BASIS.

And they have all been doing so for one basic reason…FEAR.

As I am forever repeating, this whole markets thing is nothing more than the world’s biggest video game…nothing more than mob psychology, who’s the last fool, and a game of “chicken” all rolled into one. Every value (price) of a piece of paper only represents the most recent perception. Nothing is real and no stock, commodity, bond or any other paper instrument is ever at equilibrium, or in other words, fairly priced….They are all constantly moving up and down, for varying periods of time, and if you do buy into the latest mass hysteria “logic du jour”, you are probably nothing more than fodder for the marketplace.

As you’ve heard over and over…THE MARKET’S EXTREMES ARE ABOUT FEAR AND GREED…AND RIGHT NOW, IS THERE ANY QUESTION IT’S ALL ABOUT FEAR?...For example, Is there ANY reason for Gold to be at $1800-$1900 an ounce other than the totally irrational fear the system is on the verge of collapsing?

If you know me at all, you’ll know that my opinions do not just shift with the prevailing media winds. In the end, I really do try to view the markets with a longer range perspective, and today’s perceived “crisis” is, to me, no different than any of those innumerable “The sky is falling!” events we have been through in my adult lifetime. With these most recent “crises” in mind, to save myself some time, I’ll reprint something I sent out in June, 2010, which I firmly believe STILL describes the economic state of the planet…

FROM JUNE 10, 2010

I think we are back to "normal".

The Latest Crisis is over.

I don't mean everything is peachy on the planet but I do think we have returned to a state of affairs in which we are no longer dealing with the massive financial surprises that crippled the system during the last year or so. Yes, there are worries to be dealt with, but when has this not been true? Whether it's the deficit, or social security going bankrupt, or terrorism, or wars, or oil prices, or the Middle East, or inflation, or deflation, or rising rates, or stock market bubbles & crashes, or the Savings and Loan buyouts, or Enron, or Long Term Capital Management, or the Southeast Asia Crisis, or immigration, or bitter presidential elections decided by the Supreme Court, or 9/11, or Korea, Katrina or WHATEVER---In a normal economic world, there are ALWAYS critical events and situations which need addressing by the powers that be, and all of these crises are replete with multitudes of talking heads wringing their hands in despair while complaining that "what the government is doing just isn't working!", but somehow, the abyss has always been averted and we have all gone on happily with our lives, careers and retirements...Yes, the last few years have been devastating and the damage done has been on a scale unseen in decades, but aside from the fact that virtually every government in the developed world is doing everything it can to reboot the system (which WILL result in a positive, forward moving outcome), I also firmly believe there is a massive global economic inertia in force which was spawned by the confluence of the Information Age (basically computers and globalization) and the victory of Capitalism over Communism...Today, the world is all about business and economic development, not political ideologies, and although we have recently been through a major bump in the road, what we've really done is wrench out a number of excesses, and from somewhere soon, my guess is we'll be screeching back towards relatively full throttle...Though spending habits may have changed some, the consumer oriented personality/nature of the developed world's population will still be what it was two years ago...and I suspect we will quickly be back on the same tracks we were on before. Maybe there will be some degree of subdued financial behavior for a while, but my guess is will not be long before those masses will be back to buying consumer goods and services very much like they used to...which is what keeps everything going...and several years from now, just like the recessions of 1973-74, 1980-81, 1990-91 and 2001-02, all the sad stories will just be memories...of very real and very difficult times, for sure, but NOT a collapse of the system as we know it.

And, again, I still believe this is where we are…

To make your own long term economic forecast, which will probably be just as valid as any “professional” predictions, I’d suggest you simply need to look at the following list of companies you’ve seemingly known for a lifetime, and ask yourself,  “Are these guys in bad shape? Are they dying quails? Are they headed out of business? And do I think they will be weaker & smaller, or bigger & stronger two or three years (or even decades) from now?”:

Alcoa, American Express, Boeing, Bank of America, Caterpillar, Cisco Systems, Chevron Corp, du Pont, Disney, General Electric Company, Home Depot, Hewlett-Packard, IBM, Intel, Johnson & Johnson, JPMorgan Chase, Kraft, Coca-Cola, McDonald's Corporation, 3M Co, Merck, Microsoft, Pfizer, Procter & Gamble, AT&T, Travelers, United, Verizon, Wal-Mart Stores and Exxon Mobil.

Sure, a few of them are having problems, mostly related to the mortgage mess from several years ago, but those 30 Dow companies ARE an excellent representation of the USA’s and World’s industries…And I would suggest that anyone who thinks companies like Alcoa, or IBM, or Coke , or Exxon or McDonalds, etc. are headed for the dust bin should never, ever even remotely consider investing in any piece of paper.

We have ALL seen this situation before, where all the hype screams, “SELL YOUR STOCK! BEAR MARKET AHEAD!”,  and by now, we should all recognize that this IS when you fade the maddening crowd, when you fade the absurdly irrational fear that capitalism is falling on its ass, and when you fade the idea that consumers worldwide are going to curl up in the fetal position. TODAY’S WORLD IS ALL ABOUT BUSINESS AND I DO THINK THE ODDS ARE QUITE HIGH WE HAVE RECENTLY SEEN THE LOWS IN EQUITY PRICES FOR THE FORESEEABLE FUTURE…COMMISERATE WITH THAT I WOULD SAY THE ODDS ARE ALSO QUITE THE SAME WE ARE SEEING THE ALL TIME HIGHS IN GOLD, AND, I SUSPECT WE HAVE FINALLY SEEN THE LOWS IN LONG TERM INTEREST RATES, MEANING THE HIGHS IN TREASURY BOND PRICES.



Here are a few charts, comments and recommendations…







When I was getting long Bonds back in January, and throughout the spring and early summer, I repeatedly pointed out that there was NO ONE bullish this market…Furthermore, not only was no one bullish, they were all (and many famous names included) ULTRA-BEARISH…Yet NOW, some 25 points higher, I am seeing those same guys, all over the place, talk about the “safe haven” in bonds, and how “yields are going to stay low”, and “look at what happened in Japan”, and all sorts of other bullish claptrap. As I have noted for years, the Bond market is, to me, THE CONTRARY OPINION MARKET. It is a market dominated by the most conservative investors there are, and those same investors tend to do nothing, and think nothing, unless everyone else is doing the same…which, more often than not, is NOT a good thing in trading…And right now, all of those same sheep who hated bonds nine months ago, are, I believe, just as dead wrong as I have ever seen them be. You DON’T buy bonds at 140. YOU SHORT THEM.





That’s it for now…I will address the agriculturals quite soon…

Love to hear your thoughts on any of this…




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