Wednesday, April 14, 2010

Booming Economy But...

Corporate earnings have started to come in and thus far, the verdict is good. Earnings are up and the bank profits are soaring!!! Retail sales are also strong but inflation is non-existant. Thus interest rates, after surging to yearly highs a couple of weeks ago, have fallen back.

On the ten-year rate, the 10-week moving average comes in at 3.77%. The current rate is holding the 3.80% level after busting 4% last Monday.; At that time, our report to subscribers showed how each time we neared 4%, rates fell back dramatically. Prior to the recent test, the last move to 4% occurred more than 9 months ago in June of 2009. Many say that we are in a trading range between 3.75% and 4.00% on the 10-year note. But the actual range in the past year has been between 3.2% and 4%. Certainly a move back down to 3.2% could only be caused by negative economic news.

Few today believe that we could have a "double dip" recession, meaning that the economy could retest the lows of last year. It's full speed ahead - or at least, that is what they want you to believe. The way I see it, it really doesn't matter to the executives. They make their millions whether they do a good job or not. If they fail, Uncle Sugar bails them out and they still walk away with millions. Little has been said these days about the "off-shore" special interest accounts that banks and corporations have off-shore. Here lies the risks. Another recent story in the Wall Street Journal showed how banks are leveraged to the hilt during the month, trading excessively on high margins. However, when it comes time to report, this huge amount of leverage falls to within acceptable parameters. Nothing has changed and the banks are setting us up for another disaster.

I continue to add to my short market positions as I am in it for the long haul. The market excesses thus far have not outlasted me and as we crossed 11,000 on the Dow, I again added to my short market positions. I continue to believe that interest rates will soar. While the deficit has been reduced some $100 billion over last year, gee, $40-50 billion in the hole is still a lot. Yet many rejoice saying hey, the bailout is working!!!

We are only halfway through the week and it has been a hard week for bond bears. Each day, in overnight trading, rates have risen, only to be slammed down once trading opens in the states. It's a no-brainer for 24-hour traders. Play interest rates to rise at the end of trading in the US and play them to fall just prior to the market open in the US. It's worked every day for the past week or so. Yet come next week, we expect that rates will try for the 4% level again. We are establishing longer-term puts now in anticipation. The trends show this to be the best bet.

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