Thursday – Living in Ben’s Stock and Bond Fantasy

Ben’s at it again, it’s inflation times ten

It’s the only thing that gets him by 

His balance sheet grows, the economy slows 

While the middle class is starting to die 

Oh, but now we all are seeing 

That everything he says is a lie 

Don’t want to spend our lives, living in Ben’s stock and bond fantasy 

Don’t want to spend our lives, living on the edge of reality

Don’t want to waste our cash, following sheep to the slaughter

Don’t want to spend our lives, living in Ben’s stock and bond fantasy

All kidding aside, what does it mean when our leaders lie to us?  Is it because we are children, who simply can’t handle the truth or is it because, if we were to know the truth, then perhaps we would begin to see the flaws in their leadership? Fortunately for us, Tom Cruise isn’t the only person who’s able to dig out the truth – let men of power get comfortable and keep talking long enough and you can get to the truth on your own.

Sadly, it is not 60 Minutes who is able to call the our Fed Chief out on his BS blathering on Sunday – it’s Jon Stewart, who has to have his staff go through 60 Minutes’ archives in order to uncover the very obvious double-talk coming from the guy who tells us how great things are going:

Aren’t leaders supposed to inspire confidence in their people or is that just some old-fashioned thing I learned in grade-school?  When you are running the World’s largest fiat currency system, trust is pretty much all you do have going for you – unless you plan to resort to force, of course.  Meanwhile, our friends at Zero Hedge are pointing out that Fed Doublespeak isn’t just centered on printing money – just 30 days apart, we have The Bernank saying the following:

Rates began rising a few weeks ago as data began to suggest a somewhat stronger recovery than previously anticipated (stronger, not strong — we’re still looking at years of very high unemployment).They rose again in the past couple of days on the belief that the stimulus part of the tax deal would actually lift the economy to some extent.

For example, lower mortgage rates will make housing more affordable and allow more homeowners to refinance. Lower corporate bond rates will encourage investment. And higher stock prices will boost consumer wealth and help increase confidence, which can also spur spending.Increased spending will lead to higher incomes and profits that, in a virtuous circle, will further support economic expansion.

As ZHedge says: "There you have it: lower rates are good for the economy and stocks, and higher rates are, wait for it, even gooder for the economy and stocks." It would have been "even gooder" if  Jon Stewart had asked (I won’t even pretend to expect 60 Minutes would ask a tough question) the Chairman: "Is it normal for the Treasury to print a fresh batch of 1Bn $100 bills?"  I guess that’s a question we can ask Timmy Geithner over at his blog. 

Is it any wonder then, that money is POURING out of the markets at a terrifying pace, even as the PRICE (not value) of stocks continues to increase.  As the moment, that money is not flowing back into bonds – it’s flowing back into CASH, the cash I’ve been calling for for the past month and that’s $85Bn out of the market so I don’t think it’s just PSW Members that are cashing in their chips here.  

Be careful, Be Careful, BE CAREFUL is all I am saying.  If you can find 3 crises in history where the people holding cash were sorry then please go ahead and keep buying but, if not, then really consider the advantages of getting back to cash and having a nice, relaxing holiday.  Last week I put up 2 trade ideas that you can do with a very small cash commitment(using instead the spare margin of your sidelined cash) that can return up to 3,233% by April expirations if the market stays strong.  If you can be mainly in cash and make a few small bets like that – you’re not going to miss much on a rally, are you?  

I realize that EVERYONE is telling you that now is the time to jump on the bandwagon and we are in a MSM spin cycle that is set to 11 on the positive scale but think about where we are in the year.  Yes we expect a "Santa Clause Rally" – it will be tragic if we don’t get one but we have options expiration next Friday (17th) and the following Friday is Christmas Eve (markets closed) and the next Friday is New Year’s Eve, which will be dog slow so we’re looking at a volatile week followed by 2 consecutive low volume weeks punctuated by long weekends – this is going to be very dangerous to trade under the best conditions and these are NOT the best conditions.  

I listed some general concerns in yesterday’s post and this morning I reviewed our "$10,000 to $50,000 Virtual Portfolio" for Members in an early Alert and I was LOOKING – REALLY HARD – for reasons to be bullish and I’m just not finding them yet.  Are we heading up because of the extension of the tax cuts?  We weren’t heading down before they were extended and nobody is getting more money – just the same no money they couldn’t live on before.  How is that going to cause a mad rush by consumers to the silver, gold and oil store? 

Extending unemployment insurance for 2M jobless people may delay the bankruptcy for a few more months but that too is not really a reason for our unemployed friends to rush out to Tiffany’s, is it?  Today we got in-line Unemployment Claims with "only" 421,000 jobs lost last week, which means we’re still flat-lining on job growth.  Zillow tells us that US homes have lost $1.7Tn in value this year but, as with the market, I will point out that value should not be confused with price as no one is buying these 37% discounted homes – even at these "values." 

My Alert to Members already went out at 7:26 this morning so we’re short and staying short regardless of this morning’s pop.  We should get another chance to short the oil futures off the $89 line and those QIDs should make for a nice double down in out $10K Virtual Portfolio into the weekend – it’s going to be a wild week ahead – watch yourself!