Archive for May, 2009

I’m coming out of hiding. It’s been a while, I’ve been unemployed, then re-employed, and quite a bit has changed in the world. But, as I read through the posts from last fall, I see that not much has changed.

We’re nearing the end of a bear market rally. I’m not surprised to see 900 — but I’m very surprised to see it this week after the exhaustion (or so it appeared) that we witnessed from the bulls last week. One must wonder, after seeing the bond and equity markets in action today, if the Fed isn’t pulling some strings behind the scenes via Goldman Sachs (just to pick a name out of a hat.)

The smart play for both the market makers and the Fed is now to suck money back in for another five or ten percent upward drift, then pull the plug on equities and force money back into bonds. There will be much wailing and gnashing of teeth when the Dow hits 9000 again – Joe six-pack will be re-investing his 401k dollars, and retail will be in a panic to get back into the market. The 10-year will march inexorably up toward 3.5% then 4%. When the bear rally finally ends, the Fed gets its wish in (temporarily) reining bond yields back in, and Goldman Sachs gets to keep more retail capital. A perfect play.

Here’s my setup: Long TLT Sep 100 puts, long SDS, long SRS. I’ll liquidate the puts when TLT is under 90, or when S&P sees 950. The long SDS and SRS I’ll hold into the triple digits, or until slippage starts to be an issue.

If you have equity holdings, and are long, I think it’s safe to stay in – Dow 9000 is in the cards, maybe even 9500.

Look for Dow 6000 again by Thanksgiving.


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