Is it time for a major Market Correction?

Regarding Vulture's comment:

"Good analysis. I think slowly but surely more individuals are coming around to this angle of thought. i.e., equity prices staying well bid in case of, or in anticipation of, the dollar devaluation. "

That was basically my thought when I heard about Warren Buffett selling the mega-boatload of Puts recently:

http://www.bloomberg.com/apps/news?pid=10000082&sid=ayC0l_Xh_rdc&refer=canada

He also has a mega-boatload of silver in a vault, and a mega-boatload of foreign currency.

 

Now all he needs is a mega-boat to sail away into the sunset....

Noah's ark comes to mind, but I suspect warren would prefer the queen mary 2.

Have been thinking about this whole thread (and series of related threads too). Many significant opportunities abound.

 

BUT!

When was the last time we had a 2% UP day?

You could argue that the "blow-off" rally has yet to happen....

 

For a bit of levity, check out this video:

http://www.garynorth.com/public/1216.cfm

Personally I am hoping for an "asset dip deflation scare" first per Marc Faber's ideas. I am underinvested in real stuff and have too many dollars! Will I get it? A lot of my money is in U.S. cash in my short term trading accounts...

 

Doesn't faber favor initial hyperinflation followed by deflation these days?

I think we had that "asset dip deflation" scare already from 2001-2004. Why else are metals, miners, and ex-US assets going bonkers and US equities staying bid, while long yields are moving higher quite rapidly and all majors are in a tightening stance?

 

"Doesn't faber favor initial hyperinflation followed by deflation these days?"

No, as far as I can tell deflation is totally out of the picture in his world view. He also doesn't think we are going to get hyperinflation anytime soon, necessarily, "just" high inflation. Eventually hyperinflation, but not necessarily for many years.

Regarding previous deflation scares, yes we had 'em in the period you mention, but in the same period Gold and Housing and Oil, for example, were all in uptrends.

Faber IS thinking about an asset dip before Bernanke panics:

On April 16th he wrote:

"My advice remains to be extremely defensive... Now, I am not necessarily predicting that we shall soon experience hyperinflation rates in the US, but when the Dow Jones and the US housing market will decline by 10%, it is very probable that Mr. Bernanke will put the money printing presses into high gear in order to fight asset deflation.

...Still, as I indicated last month, aside from bonds, all stock and commodity markets seem to be now overbought and vulnerable to a sharp correction. In fact, whereas I am extremely negative about bonds in the long term, I believe that for the next three months or so, bonds could actually outperform equities and also commodities. "

On February 25th he wrote:

"Now, commodity prices can have big fluctuations, and we have had a bull market now since 2001, I’m bearish near term about commodities, I think the correction has started, and some commodities like Aluminum, Zinc and Tin have already corrected meaningfully – in the case of Zinc it’s down more than 15% from its recent peak, so a correction has gotten underway. And it may go on further. The peak was I think in 76, and 78 the price of gold went down by almost 50%, and afterwards it still went up 8 times. So we can have a meaningful correction in commodity prices and it still goes up much more than say the Dow Jones over the next couple of years."

and

"Yes, I think we have to distinguish between the period 1980-2000 and the last 5 years, because if you look at the stock market crash in 87, the S&L crisis in 99, the Tequila crisis in 94, the Asian crisis in 97, LTCM and Russia in 98 – it all occurred at the time of falling commodity prices. And so, if you printed money at that time, it didn’t flow into hard assets, or commodity prices, but now we’re in a different situation in as far as commodity prices have been rising. So the next time the Fed – and I have no doubt that if the stock market drops 10%, and if the housing market drops 10%, Mr. Bernanke will not cut interest rates in baby-steps the way they have been increasing, but he’ll cut them at half a percent at a time, or even 1% at a time, or even 2% at a time to prevent asset deflation causing economic damage. In that situation, I think the dollar could really take a hard hit. As I said before, we’ll have to define a ‘hard hit’ against what? But I suspect that when the Fed prints money the next time, no matter how weak the economy is, that inflation will be a problem still. "

Meanwhile, like you say, many commodities are incredibily strong. I just calculated that the copper pit contract has closed above it's daily 5 SMA for 33 days in a row now!

 

I guess Buffett is out of his silver "trade" (can you call it a trade when you have to rent a warehouse to put it in?). It sounds like he got out a while ago:

http://www.marketwatch.com/News/Sto...B4D-4F1B-B532-66B44374D2C9}&siteid=mktw&dist=

This was posted by libertad on another thread today but I thought it related to this discussion too...

 

I think today was only a tremor....the big one is yet to come.

 

The world powers are playing a big game, who is gonna be left holding the bag of worthless dollars?

My guess, and I will stand by this, is that the real decision will be based on the next administration. Not necessarily Republican or Democrat, but anyone who really thinks & researches knows what I mean. Another Bush type administration and I am getting the f**k outta Dodge. I finally figured out why that IMF official (my sparring partner's wife's best friend) said that in 3 years, USA is completely finished.

There is something US is doing very seriously that can have a great outcome. An energy revolution could change a lot, bring tons of jobs and lot of changes. Even with the Haliburton gang in power, you guys would be surprised what is being done.

I'll stay optimistic for now, but like I said, 3 years.

 

THE USA FED says it will stop raising rates based on a worsening economic outlook. - may 10 2006 FOMC statement

The FED will stop in either june or aug. Stock markets rallies have a correlation to when interest rates stop going up from a base, they fall after the rate rise halt. Any stock market rally after the interest rate halt will be temporary as the FED has stopped because it fears the economy may be worsening. So why would stocks go up.

HOWEVER, if sky rocketing base (gold, platinum, silver) metals and oil get into base inflation then the FED may force a recession to stop the speculation, to stop a dramatic rise in inflation.

The USA FED is responsible for the massive world liquidity, pushing speculative asset markets way to high, so I fear they may have to become the bad guy to avoid inflation. If the dont, remember the 1970's.