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Sell the Rallies, Short the (Industrial) Metals


The U.S. market is in a clear downward trend.  Relief rallies occur as Bernanke runs the printing press.  However, there is an “unvirtuous encirclement” emerging to strangle any hope for a renewed upward cyclical trend.  From a macro view, here are the kinds of disparate events that I find so troubling:
                                                          
1. Wheat is soaring and rice rises 30% in a single day as major exporting countries slap on export restrictions to avert rising prices at home.  Food riots erupt in Burkina Faso, Cameroon, Egypt, Morocco and Senegal.  Thai farmers are sleeping in their fields to avoid theft.  Stagflation and geopolitics a deadly combo.
2. While Germany and France and the Eurozone is generally holding up, some countries in the zone like Spain are being taken down by their housing bubble and budget deficits.  Meanwhile, on the periphery, from Iceland and Turkey to Hungary, Latavia and Romania, inflation is rapidly rising against a backdrop of large budget deficits and budding hyperinflation.  If countries start collapsing economically, that can only spread.
3. Japan’s economy and stock market have fallen back into a huge funk – this despite the burgeoning China trade.  We’re going on 20 years of nothing in the land of the Rising Sun.  There is a lesson to be learned for America….
4. China’s inflation is now spilling over into its export sector and threatens both internal unrest and a hit on their exports and growth.  PLUS, come Olympics time, there is going to be a huge gap internationally in goods shipped as the country shuts down for a month.  Huge contractionary shock.

I see nothing but trouble ahead in the next six to twelve months or more, which means the market has not yet fully discounted all of the problems.  Nor do I see the U.S. political process resolving any of this.  Instead, we will have three candidates competing over how big or small the bailouts are going to be – but all will call for bailouts of some sort.

If the global economy does downshift and decoupling fails, industrial metals will be at the vanguard of commodities that take a hit – even as gold might remain an inflation hedge.  As for oil, it could go either way depending on the fate of the dollar.  As long as the dollar continues its downward trend, oil prices must rise, even in a global slowdown.

QUICK TAKES
1. I watched a video clip of James Altucher pimping a couple of biotech stocks, including SVNT on macro trend grounds – more people getting asthma.  Gotta laugh since the technicals are flashing a straight short on the beast.  It would be refreshing if some of these stock pickers woke up to the idea of picking stocks on fundamentals is fine but only if you properly time the entry using technical analysis.  On that ground, SVNT is no buy now.
2. Whether you are for Hillary or Barack, you can’t condone Obama’s legal ploy to disenfranchise the voters of Florida and Michigan.   That ploy is just as corrosive as the Supreme Court’s rigging of the popular vote in Florida in 2000 in favor of W. 
3. California is officially now in play for McCain – remember the Golden State’s last two governors were Republicans.  (I’m not counting Gray Davis – He belonged to the Show Me the Money Party).
4. Hank Paulson is off to China once again for another summit.  Tibet and China’s currency manipulation are said to be on his agenda.   Waiting for Godot will be shown in Mandarin for his pleasure in the Forbidden City’s Hall of Supreme Harmony.