Game Plan

This is a dangerous time, the start of the serious unwinding of the Bernanke-Powell Artificial Economic Experiment. It may take a year or two to clean out this mess. While many are viewing it as a time to be Bearish, I would tend to characterize it as more a time for chaotic rallys and crashes. Probably the safest thing might would be to buy 2 year bonds and hold to maturity, to a time when things may be more stable.

But if one wants to play now, keep these factors in mind:

  1. Money is not free anymore but historically it is cheap.
  2. Both stocks and bonds are expensive and in a bubble, but
  3. the talk of Fed blinking is nonsense , the Fed has not done anything yet and what they are doing is well below levels needed to stop inflation,
  4. Funny Money is still everywhere
  5. Junk Bonds vs Treasury Bond prices show there is no fear.
  6. Curve steepening suggests the bond vigilantes are done for now.

With all that in mind, I am planning to dust off my buying shoes and be a buyer in the lower parts of the trading ranges we have seen this week. I will not be using stops as I will be trying to buy the bottom, looking for a first stage chaotic rally, and will control risk by only putting a portion of the position on at these levels, probably a third of it, with the plan to have it all on before SPX tops 4620 again. I view this an inflation-based rally, maybe a three to five month trade that will force the FED to get serious.

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