Tuesday, March 24, 2009

Wade in Slowly ...

and at your own risk.  The market had a monster move just two days ago, and did its normal 2% correction the following day.  It was pretty predictable after such a huge move.  But the question is, what next?

I actually think we probably go up from here in the short term.  If you can get in and out quick, that might be something you look at doing. But if you are like me, and do not sit in front of a trading window all day, then you have to think long and hard about putting any cash into the game.   What is my big concern?  I have not figured out how to play the Fed's one trillion dollar gamble.

Here are the undeniable realities.  We will have inflation in the next few years.  The value of the dollar will definitely drop in relation to other currencies, particularly the Chinese Yuan.  But the question is when will it happen.  If you have a long term horizon, your move is simple.  You need to short US treasuries and take an inflation play like gold.   The problem is determining where these are going to be in the short term and if you can stay in these plays long enough for them to play out.

I think Gold trades in this $900 range for some time.  I do think it will probably break out above $1000 and stay there over the next year or two.  Same can be said for the treasuries.  But it presents an even bigger problem.  Short term, I think treasury prices could actually go up.  But there is no way that investors are going to continue to stay there when yields are this low.  So do you get in now?  Can you wait two years for this to play itself out?

I need to spend some time thinking what the other side effects of this move will be.  This is a non-trivial shift in money.  There are going to be winners and losers and the trick is to be on the winning side of it.  The bad news for the rest of us?  Taxpayers will MOST DEFINITELY be the first loser if this plan goes south.

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