This is a simple contrarian test, what are they saying on CNBC ? 1) buy here because the Fed and Treasury are pulling out all the stops and the market is oversold for this stage of the Macro Cycle; or 2) Sell every rally because the market has dropped 25 percent over the last 20 some days. You have the picture.
We remain short T-Bonds because we think long-term interest rates will rise. Yesterday we increased our leverage on long stocks to 127 percent. This whole decline over the past 12 months has not been stopped by reducing interest rates because one factor that led to the market decline was interest rates that were too low and even lower rates are not the answer. And furthermore, the Fed interest rate cut sets the stage for inflation, however deflation worries will probably keep things contained for a while.
Watch Ag and Industrial commodities for a signal to higher prices. From a raw price standpoint they probably should be bought for pure value, corn at $ 4.00 and Beans at $ 9.00 are cheap enough.
We no doubt are skirting a recession with all this Fed and Treasury action. John Mauldin says, we will muddle through this stage, we think the real risk is probably pushed out a year from now. Get set for a strong counter-cyclical move starting from here on a lot of things. Gold and silver as safe-haven trades will probably lose their luster for now.
One other point, the Chicago Mercantile Exchange is meeting with the Fed and Treasury tomorrow to make their presentation for use of the exchange trading facility for trading of various debt instruments at the heart of this mess. This was part of our list of suggestions that we made on this blog and sent to our Senators and Representatives on September 22nd.
7:50 AM CDT