The focus of investors is currently focused on the deflationary pressures that are whipping through the markets. A wave of selling fear, currency intervention, the credit crisis and the deleveraging of hedge funds sent stocks and commodities plunging to new lows. The mainstream continues to claim that the slowing growth of the global economy will lead to the end of the commodity bull market as we know it. However, the picture is about to change drastically. The reality is about to set in that the massive intervention and monetary expansion of central banks will soon bring a re-emergence of inflationary pressures.
The Federal Reserve and monetary authorities continue to work through the crisis as new problems emerge. They continue to claim that their bailouts will solve the problem, but the bailouts and the problems continue to get worse. This has happened every time, from the bailout of Bear Stearns, to AIG, to Fannie & Freddie. Then we had to thank the U.S. taxpayer for the wonderful $700 billion bailout. The markets continued to plunge in the days following which led to the central bank’s coordinated rate cut. We are nowhere near the end of the credit crisis. Unfortunatley, in the coming months we will be thanking the U.S. taxpayer again for the next trillion dollars in bailouts.
In July inflation was the main concern. The dollar was about to break new lows; the financials were breaking new lows; gold was about to break new highs and we had the highest inflation in three decades. The international banks and president’s working group had a plan to moderate inflation. After that, sentiment mysteriously changed on a dime; the dollar rallied and deflationary concerns soon emerged. Hedgefunds were squeezed out of the short financial and dollar bearish bets, eventually leading to a massive deleveraging and wide scale liquidation of positions. Stocks dropped to their lowest levels since the tech bubble and commodities sold off around 40 percent. As the equity markets around the world plunged, some investors piled into U.S. Treasuries and dollars for their perceived safety. Now the Federal Reserve has ramped up its balance sheet and the money supply in preparation for a massive re-inflationary effort.
Source: Federal Reserve & Chris Puplava of Financial Sense
The deflationary pressures we have seen over the last few months will probably begin to reverse within the next couple of months. Investors interested in protecting against the coming weaker dollar, rising interest rates and higher levels of wealth confisication from taxes and inflation should begin to take positions now so they are well prepared for the re-emergence of these pressures. Investors should use caution in case there is fraudulent activity from the world’s market manipulators.
Dollar Puts
Given the recent rally in the dollar, it might not be a bad time to risk a little premium to simply buy some dollar index put options. The U.S. is technically bankrupt and the center of the credit crisis. The massive monetary expansion on the part of the U.S. Federal Reserve may also put downward pressure on the value of the dollar. Please contact me if you would like some ideas for option trades.
Short Bonds
The recent crash in the equity markets is not the only way the average American’s retirement will be confiscated. A large percentage of the mainstream wealth has been tricked into buying U.S government bonds. These bonds will most likely plunge sometime over the next 18 months in the face of rising inflation and upward pressure on interest rates. The bond market is currently near multi-decade highs.
Long Silver
The manipulation in the silver market by the president’s working group and their collaborating banks has sent the paper price of silver to artificially low levels. It is now difficult to buy precious metals in the physical market. If you can find it, premiums are as high as 40 percent. The paper market may eventually catch up to the physical market. My price target for $25 silver this spring remains intact despite market manipulations. Other analysts have a longer term target of $75 silver for Dec 2010. This type of manipulation has never worked in the past and paper prices will most likely catch up to the physical prices which represent supply shortages and soaring demand. There is an interesting article by Ted Butler on the silver market manipulation. This might be the last chance to own $12 silver over the next few years.
Please contact me if you have any interest in trading these markets. I can be reached at 1.877-377-7936 or email me at jared.irish@archerfinancials.com .
Futures and options trading involve significant risk of loss and may not be suitable for everyone. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. The views and opinions expressed in this letter are those of the author and do not reflect the views of ADM Investor Services, Inc. or its staff. The information provided is designed to assist in your analysis and evaluation of the futures and options markets. However, any decisions you may make to buy, sell or hold a futures or options position on such research are entirely your own and not in any way deemed to be endorsed by or attributed to ADMIS. Copyright © ADM Investor Services, Inc.
