2-24-2012:

NOTE: This was written pre-Fed speak on Capitol Hill today that took a toll on the inflation hedges like the metals.  This shows you the power of the Fed over the markets.  Dr. B bascially jawboned the markets down today.   GLD was down 5.30%.  SLV (silver ETF) was down 6.36%.  Most of the damage occurred in a few big waves down.  Follow me on Twitter for the latest updates.  The following was published on 2-26-2012.

The Dow Transports remain weak in the face of rising energy prices.  Oil is on a tear as are metals.  Chairman Bernanke HAS his inflation now.  He was hoping for it, and now he’s created it along with the wizards in Europe, who are taking savers’ money and trashing it.  So we need to do things to protect the value of our dollars.  Buying real estate at depressed prices, buying metals, and buying dividend producing stocks are all ways to do this.  As an aside, take a look at DBA as a “catch-up” candidate to DBC (I believe both entail some extra tax filing of K-1’s just to warn you.  Schwab does that submission for me for DBC for free in the case of my IRA).  So far DBA has stabilized but not rallied with DBC.

Buying bonds may even work for a while longer, but not that much longer.  We do not live in Japan (unless you do as some of my readers do!  And a hello also to the growing Chinese readership as well.).  The Fed has gone out of its way to create inflation, so I do not believe interest rates are going to remain near zero percent for more than 6 months to a year.  China loosened its monetary policy this week as well.  Certainly, with rising inflation the Fed will be on hold in regard to any other Quantitative Easing or maybe even debt repurchases, well, except for housing.  It may still be active in the housing debt market, which caused our financial problems in the first place along with years of loose credit from the Fed.  Set mental stops on the losses you will take in bond positions if interest rates start climbing.

That said, it’s not a good idea to sell up trends that are still continuing, but keep on the ball and use stops.  And you should know that Gary Shilling believes that Treasuries still have room to rally.  The interesting thing is that his projections have been dead on while others have steadfastly predicted inflation to the detriment of their portfolios.  So we look at the facts to see where there could be trouble, but look at the charts to PROVE that trouble is either here or about to arrive.  That is the power of this newsletter’s approach.  We do our best to stay AWAKE, conscious!  We do not form assumptions and get stuck with them when the facts change and more importantly, when the charts say we are no longer right.  The stock market will tell you what Wall Street won’t.

If the government decided to dramatically tighten credit, the entire paragraph above would need to be rewritten, so even things like gold that have worked for years could now stop working.  So I would advise paying attention to the big trend changes as they show up.

The banks have held the recent breakout above the January highs and that is the line in the sand.   If we do see a correction begin, the market could retest the October bank breakout and still maintain an up trend.  Housing stocks are testing support again and could break with the next flux of foreclosures moving into the market, but so far it’s simply a correction in a strong up trend.

Oil has moved to a level where it must impact spending in our economy.  It is a huge tax and if there is war, oil will skyrocket (really, it already has skyrocketed but it will be far worse if there is a conflict).  The Iranians could endanger passage of oil through the Strait of Hormuz.  That is the key pressure point for oil according to analysts.  The Saudis say they’ll pump more, but there is a limit to their ability to expand their output.  It may have some short term impact on oil prices.

Natural gas stocks are extremely interesting in their behavior as they move up in the face of crashing natural gas prices.  Obviously the market is discounting a huge increase in natural gas prices.  I’ve read that Walmart has joined the earlier natural gas converts like UPS in converting their trucks to natural gas.  If the White House had an energy brain or two instead of a czar, we’d have natural gas stations being built all over the country, employing the unemployed construction workers, and we’d be buying property in Saudi Arabia in a few years.  Exxon knows this, which is why it has paid up for its natural gas purchases recently.

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