The KISS Letter

The cat is out of the bag. The markets ignored the European crisis despite the panic mongering by all the brilliant analysts in the western media. And guess what? The markets and the money were correct again. Even more impressive is the behaviour of the US economy and equity markets. Barely six months ago, most of the experts were trumpeting the failure of the quantitive easing programs QE1, QE2 and QE3 (albeit under a different guise). Once again, the markets have made a mockery of the doomsayers. The Dow has clambered all the way back to 13000 from the low of 6500. Unemployment, at least the political indicator, is closing in on the predicted 8%. While the Republicans flounder, comically tearing each other to pieces on national TV, Obama looks more like an easy winner in November. One may be forgiven for thinking that if this is too good to be true, then maybe it is.

The all-time high of the Dow before the collapse and at the peak of the real estate bubble was about 14200. Today it is 10% below that level.

The Euro is stable and the USD is resuming its devaluation against the currency basket. What is different today from four years ago? The real estate market is in the doldrums. Unemployment is still high and GDP is still low. The difference, readers, is the fact that US debt has jumped by 50% during this period from $9.8T to $15T and as a percentage of GDP from 70% to 100%. Put simply, the markets are being supported by mountain of debt and liquidity that makes all the previous bubbles look inconsequential. And to remove all doubt,  a KISS rule of thumb states that ALL bubbles must come to an end. The only questions are when and how. Before or after November? The plan is for inflation (as opposed to deflation) to gain traction. At these low interest rates, funds will flow to real assets as a hedge. Seems to be working....so far.

The price of oil is up to $108 a barrel. The theory espoused by some of the media and politicians blaming Iran, is a load of claptrap. ALL the commodities are up more or less about the same as the world economy slowly recovers and demand increases. Take a look at a graph of oil (blue) superimposed on the Dow

Says it all, doesn't it? As for the price of gas in the States rising above $4. The explanation is simple. First, there is an oversupply of oil and gas sources in the US. A warm summer guaranteed that. However, Asia and Europe had a particularly cold winter increasing demand. The law of supply and demand. American companies are exporting excess capacity and more, creating a supply shortage in the US. Nothing to do with Iran, folks!

SHORT and SWEET

1. DOW - looks to be making a double top (negative), supported by the liquidity bubble. Huge resistance in the 13000-14000 area. Volumes are low, so for now sideways is an easy bet. However, any real bad news (not CNN type nonsense), could cause a sharp downturn. KISS rule of thumb - the market does what it is supposed to, but not when.

2.CHINA - The Shanghai index is indicating a possible recovery in the making. A break above 2520 would be a buy indication. FXI is an ETF traded in the US.

3. GOLD and SILVER - Both looking very strong and clearly sensing possible inflation ahead. Inflation is usually a negative indicator, but with these budget deficits, liquidity and guaranteed low interest rates, we could see a rush of cash to perceived value.

4.Equity markets are nervous, so anyone wishing to invest might want to look at specific direct investments in areas of personal expertise.

Thats it for February. Happy hunting and looking forward to Spring.

The first rule of survival is clear: Nothing is more dangerous than yesterday's success - Alvin Toffler