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Quote of the Day

Monday, March 19, 2012

March 19, 2012 -- While recovering from my broken hip, I've had more than my usual time to think. I came across a book that I had purchased in 1971, at a time when I was dealing with a great number of worries. The book was authored by Florence Scovel Shinn, and it was titled, "The Game of Life and How to Play it." The book was based on a subject I knew little about -- metaphysics.

 

I was curious, and started to read the book. Despite my scepticism, I became fascinated with the book. Shinn wrote four short books, and you can buy a compilation of all four books from Amazon. As a converted old cynic, may I suggest that subscribers who have troubles (diseases or otherwise) send away for Miss Shinn's fascinating books.

 

Every sector of economics tends to have an overriding theme. What is the theme of today? My answer is deleveraging and regression to the mean, or correcting generations of inflation and fiat money-creation. Following a period of massive inflation and money-creation, it usually requires tan years of contraction and deleveraging before an economy can return to something that resembles normality.

 

I consider the beginning of what I term "The Great Contraction," as having started in May 2007, with the Dow at 14164. On that basis, the deleveraging should carry on (ten years) to approximately the year 2017. The question is how will the markets and the (US) economy fare during the years from 2012 to the year 2017?

 

On the face of it, the answer "should" be deflation and recession or depression. But the big question is -- what will the government and the Fed do in the face of correction and contraction?

 

If the government and the Fed do little or nothing, that would be hard to believe, at least based on their performance so far. The more believable answer is that the government and the Fed will fight correction, deleveraging and contraction with all the tools at their command.

 

All of this leaves me and my subscribers in a ridiculously difficult position. What do we do with our money (and I'm assuming that my subscribers have some money after the wildly volatile actions of the economy and the markets since May of 2007.

 

My immediate thought is to do very little on the thesis that whatever we do is very likely to be wrong.

 

At any rate, here's the position I suggest, at least for now: 35% in the Permanent Portfolio (PRPFX), 20% in gold or GLD, 10% in silver, 15% in cash, 20% in PIMCO Commodity Real Return Strategy Fund (PCRDX)-- and a $300 Subscription to Dow Theory Letters.

 

In writing this site, I am purposely leaving out a discussion on Greece, Portugal and Spain, and I am further leaving out a discussion of the over-the-top money-creation of the Central banks of Europe, Japan, Britain and the US. Once again I'll repeat that the various governments and the central banks will not allow this secular (and devilishly confusing) bear market to proceed to its natural and normal conclusion.

 

The overriding truth of the situation -- NOBODY, NEITHER THE PUBLIC NOR THE POLITICIANS, IS WILLING TO TAKE THE PAIN OF CORRECTION. IN THE END, THE PAIN WILL BE WORSE THAN EXPECTED.

 

TODAY'S MARKET ACTION:

 

My PTI was up 4 at 6402. The moving average at 6357, so my PTI is bullish by 45.

 

The Dow was up 6.51 to 13239.13.

 

Transports were up 8.72 to 5360.04.

 

Utilities were down 1.93 to 451.67.

 

NASDAQ was up 23.06 to 3078.32.

 

S&P 500 was up 5.58 to 1409.75.

 

There were 1908 advances and 1100 declines on the NYSE.

 

There were 132 new highs and 7 new lows.

May light crude was up 0.98 to 108.56.

 

Total Volume on the NYSE and associated exchanges was 3.9 bn.

 

Bonds: Yield on the 10 year T-note was 2.37. Yield on the long T-bond was 3.47. Yield of the 91 day T-bill was 0.086%.

 

Dollar Index was down 0.33 at 79.45. Euro was up 0.66 at 132.45. Yen was down 0.05 at 120.00. Currency Prices as of 1 PM Pacific Time.

April gold was up 11.50 to 1667.30. May silver was up 0.35 to 32.95.

 

My Most Active Stocks Index was up 6 at 329.

 

The Big Money Breadth Index was unchanged at 1050.

 

GDX was down 0.33 at 49.60.

 

HUI was down 2.71 to 473.75.

 

CRB Commodity Index was up 1.49 at 319.42.

 

The VIX up 0.57 to 15.04.

 

Permanent Portfolio Fund (PRPFX) was up 0.09 at 48.81 (previous day closing). YTD Return: 5.90%.

 

Late Notes -- The sluggishness of the Dow (and DIAs) as the stock market laboriously creeps higher is like watching paint dry. However, I'll continue to depend heavily on my PTI to identify the market's direction. As long as my PTI remains bullish, I'll stay with my 'test" or speculative position in the DIAs. If my PTI is fated to turn bearish, it's going to take time.

 

Gold like the stock market, creeps very slowly higher.