September 13, 2010

First thangs first…I recently was diagnosed with prostate cancer and this coming Thursday will be having Da Vinci Robotic Surgery to have my prostate removed. Via PSA tests and occasional biopsies over the past 6-7 years, I have been monitoring for the possibility of cancer (my Dad had it), so finally getting it was no surprise. According to my tests, the cancer is probably confined to the prostate itself, and in the very earliest of stages, so the prognosis is weighted towards a full recovery. Nevertheless, for at least Thursday and Friday I will be unavailable, and as is the norm, my phones will be forwarding to Rick Sitten and Willie Adams at Benchmark Financial Services. The three of us go back 30 years to our mutual beginnings at Merrill Lynch and they are more than capable of handling anything to do with the markets or your account. In the event dialing my normal phone number does not forward through to them, their direct lines are 800-273-0269 or 770-454-1880. Rick’s email is rbsitten@aol.com .

So time is short (hopefully not in my big picture sense) and I’m going to make these latest sage observations quick and to the point (or at least that is my intention).

My opinions remain the same…

 Buy Stocks

Sell Treasury Bonds

Sell Gold

Buy Soybean Oil

Buy Lumber

I have long regarded all the financial markets as nothing more than a big game of mob psychology in which we try to determine where, in which direction, and for how long, funds provided by “investors” seem to be headed. Every value, whether of a piece of paper or a real commodity, is nothing more than the sum total of perceptions, and no price in anything is accurate, fixed or stable. With this in mind, what immediately follows is a note I made to myself last week regarding the Stock Market…

People get in.

People get out.

People win (a little).

People lose (more).

People are out when they should be in.

People are in when they should be out.

It’s a game.

And right now…(see 2 years of withdrawals),

People are definitely OUT of stocks.

Statistically, I know that in the first 7 months of this year, investors pulled $33.12 Billion out of domestic stock funds and plowed $185.31 billion into bond mutual funds. If memory serves me, another stat is that investors have been net withdrawers of stock mutual funds for 31 months straight now. If those numbers don’t represent “out” I don’t know what would…And anecdotally, I cannot count the times during the past few months when I have heard, “Completely out of the stock market. Just couldn’t stand the worry any more”…I mean it. Over and over.

Think about it. As for paper investments, the only three choices are Stocks, Bonds and Cash (money markets, CD’s, T-Bills, etc.) and right now the public is OVERWHELMINGLY avoiding stocks to the point where the numbers are almost mindboggling…So I’d say this…Unless you think the stock market has disappeared, forever, as an investment vehicle, or unless you honestly think the entire economic world is headed south, again, forever, NOW IS THE TIME TO BE BUYING STOCKS. If you think, for example that IBM, or Home Deport, or UPS, or Disney, for example, are still going to be thriving and in business 2 or 3 (or 20) years from today, you should be buying them NOW, when everybody else hates the stock market, not six months in the future after a 2000 point rally in the Dow.

As I wrote in my hellishly lengthy Dow 25,000 newsletter, the economy HAS turned around. That’s all that is important.  In spite of all what you hear from all the talking heads, how fast we get going is basically irrelevant. And again, if you think the IBM’s and UPS’s of the world are going to hell, I’d say go sell every stock you’ve got. Right now. If not, go start buying them. Nobody else is.

I am also buy the futures contract here….using $1000 (200 point) stops or combining futures with puts bought as defense…

Short Treasury Bonds

We are seeing (have seen) the lows in long term interest rates for the foreseeable future…

Back in January I began to call for a sharp decline in interest rates and a major rally in the bond market, with the 130’s as my target, which is pretty much exactly what has happened. Believe me, I don’t mention this to pat myself on the back…the taste of two years short soybean oil is still in my mouth…but to try to remind you how totally, totally negative the analytical community was regarding bonds at the beginning of the year…and then to point out, that today, virtually all of those same people who hated the bond market six months ago are now in love with it…and the talk everywhere has become, “rates have to stay low” and “look at Japan” (where rates collapsed 10 years ago and have never come back up)…and about “safe haven buying’ in Bonds. To be perfectly clear…All the former bond bears have become bulls…

I could not disagree more. I have basically been on and off bullish the bond market for 29  years (really) but now believe the odds are quite high we have already seen the absolute lows in long term interest rates…and now consider the bond market to immediately be as much of a short as it was a buy 8 months ago. While I do believe we have reached a new low plateau in interest rates, and do not expect to see the “spike up” in rates I’ve seen wrongly predicted a million times during the past few decades, I do look for something like a 15-20 point decline in bond prices over the next 6-9 months…and yes, higher long term interest rates along with it.

I was preparing a study of Bond market tops to go into this newsletter, but in the interest of brevity, will leave it for later. All I will say is, the title of that newsletter was going to be, “When Bonds Die”, by which I meant to infer when a bull market in bonds comes to an end, the reversals back down can be brutal…which is what I think we are in the midst of witnessing now… 

Sell Gold, Sell Gold, Sell Gold

I continue to think this market is primed for an outright crash…The world currency system is NOT falling apart. The world economy is NOT disintegrating. The European Union is NOT falling apart. And hyperinflation is NOT even remotely imminent…As I’ve said before, Gold IS the only market today that is almost universally regarded as a “bull market”, which is NOT meant to suggest it should be bought…au contraire…And I’d also add, do not get bulled up on gold because you’ve seen stories about famous investors having bought it…I know it’s hard to believe, but every time I’ve seen that, “so and so owns it” stuff, it meant go the other way.

Maybe I’m wrong but I think just the slightest $30-$40 “twinge” to the downside in Gold from current levels is all this market needs to get started…and before all those neophyte ETF commodity traders know it, Gold could be at something like $900, and they will be down 25-30% on their money…and wondering what happened…Gold is the granddaddy of the commodity markets and you DON’T make money in this business by following what some schlocky guy on TV sells you.

Buy the Soybean Complex

I still see the soybean complex as primed to break out on the upside…more or less in tandem with the upsurge I look for in Stocks, Crude Oil and several other markets. In the agricultural, I have come to view the past few years of sideways ranges as bases from which prices will accelerate upward. In a nutshell, for example, 10 years ago you could grow Soybeans for maybe $6.00 a bushel. Today that number might be something more like $9.00 and it is therefore entirely possible we have now established new, higher, levels at which agricultural commodities will be priced…Demand has been enormous, and the weather, in many areas of the world, has been quite funky.  Soybeans were contra-seasonally quite strong heading into August and September (when they are usually very weak) which I see as indicative of underlying strength, and finally, as I’ve noted for two years now, large consolidations DO tend to result in very large, one directional moves…and more and more, it looks to me like that move is coming on the upside.

 Buy Lumber

Not one person has even shown even the slightest interest in this idea. I think it is potentially a fantastic trade. If I need to explain why, you’re not going to take this trade anyway.

As stated in my recent monster outlook, I think real estate is going to explode to the upside next spring…

Thanks…And Guys, know your PSA!

Bill

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