Featured Trades: (PALLADIUM), (PALL)
ETFS Physical Palladium Trust ETF

2) Palladium Explodes to the Upside. If you are thrilled about the recent performance of gold, you have to be absolutely ecstatic about the ballistic rise of palladium, which has soared by 33% in the past two months. Double dippers beware! Moves like this by industrial commodities do not occur in the face of a collapsing economy.

Palladium, named after Pallas, the Greek goddess of wisdom, has been mined in South America for over 1,000 years, was discovered as an element in 1804, and saw jewelry use start in 1939. But in 1975 it really came into its own when a nascent environmental movement got legislation passed requiring catalytic converters on all new American cars.

Toyota's USA's president, Jim Lentz, believes that the US car market will recover from the present 12 million annual units to 15 million by 2015. You can forget the drug induced haze of 20 million annual units free money brought us, returning in our lifetime. Fewer than one million of these will be hybrids or electrics. That means industry demand for catalytic converters is ramping up by 3 million units a year.

Which catalyst will the auto makers choose? Palladium at $539 an ounce or platinum at $1,642 an ounce? Hmmmm, let me think. They do have new management now, so maybe they'll figure it out. Some 80% of the world's palladium production comes from Russia and South Africa, dubious sources on the best of days. That means that a long position in this white metal gives you a free call on political instability in these two less than perfectly run countries.

Also known as the 'poor man's platinum,' demand for palladium for jewelry in China has been soaring with the growth of the middle class. On top of this, you can add $387 million of new demand from the palladium ETF (PALL) launched in January, which will soak up a hefty 10% of the world's production.

Those set up to trade the futures can play the Decembers contract, where a margin of $3,713 gets you a 100 ounce exposure worth $53,900. If you are looking for something to stash in your gun safe, bury in the backyard, or give to the grandkids on their college graduation, get physical. You can buy 100 ounce bars at $50 over spot, or Royal Canadian Mint one ounce .9995% fine palladium Maple Leaf coins at $50 over spot. And yes, you can even buy them on Amazon by clicking here.

Featured Trades: (QUANTITATIVE EASING II), (BEN BERNANKE), (TBT)
SPDR Gold Trust Shares ETF
iShares Silver Trust ETF
Market Vectors Coal ETF

1) Bring on the Conspiracy Theories! There is a wonderful conspiracy theory propagated by Tea Partiers that has been making the rounds in the financial markets for the past several months. In a desperate attempt to salvage the November election, president Obama has ordered Fed governor Ben Bernanke to flood the system with $2 trillion of liquidity. This is the QEII you have been hearing so much about. The move will give the economy a much needed shot in the arm that will enable the Democrats to retain control of both houses of Congress. Two more years of Obamanomics will then follow.

The only problem with this theory is that it is complete hogwash. For a start, Ben Bernanke is a Republican originally appointed by President Bush. Then there is Fed independence to consider. The board of governors is well stocked with enough conservatives, like Richard Fisher (click here for my chat with him), to make such a politically inspired maneuver impossible. If the Fed weren't set up this way, it would become a political football kicked back and forth with every election. Congress would order the stimulus machine to be stuck permanently in the 'ON' position.

You also have to ask the question of whether QEII will make any difference at all to the economy. With banks desperately seeking to deleverage and unwilling to lend, the level of interest rates today is truly irrelevant. The 35 million homeowners with negative equity, about 25% of the total, certainly aren't going to be refinancing anytime soon. Much of the drag on the economy springs from the sorry state of the real estate market (click here for 'Years of Pain to Come In Residential Real Estate'), so there is little the Fed can do, unless it starts buying millions of houses and burning them down.

Personally, I think the American central bank is out of bullets, and that any such gestures would amount to pushing on a string. Believe me, I have been watching the Japanese do this for 20 years, to no effect. There is one thing the Fed does understand, and that is that any QEII implemented now would be highly inflationary down the road. This fits nicely with my (TBT) recommendations.

But hey, as I learned in my journalism days, never let the truth get in the way of a good story. My late editor at The Economist, the brilliant Peter Martin, taught me that belief will trump fact every time. Facts change, opinions don't. That totally works for me, because this theory on the true motivations of the Fed is driving cash into hard assets at an unprecedented rate, commodities and companies that I have been pounding the table about for the past 18 months. I made that call because it dovetailed nicely with global macroeconomic trends which I see continuing for another decade. Most people get invited to dinners. I get invited to mines.

If the market wants to run the prices of my assets up for the wrong reasons, I say bring it on! The dollars I am making as a result are just as good at the bar.

This is What a Chart Should Look Like

Great News for Hard Assets

Featured Trades: (COPPER), (FCX), (GLD), (KOL), (BHP), (ECH)

3) Upgrading Copper. They say that imitation is the sincerest form of flattery, so I felt like puffing out my chest yesterday when Goldman Sachs (GS) announced an upgrade of Freeport McMoran (FCX), posting a six month target of $96/share. (FCX) is one of the world's largest copper producers, and has a nice little gold business on the side, as the two are often found together. The Vampire Squid said that demand from China was unrelenting, would continue into the foreseeable future, and that it was not all about stockpiling.

I always welcome more investors joining the bandwagon after I have established a position much lower down. Their report adds confirmation to my recent piece on the red metal (click here for 'Is Copper the New Red Gold'). It also bodes well for my call on Chile (ECH) (click here for 'Chile is Looking Hot'). Long time readers know that I have been bullish on copper all year, listing it in my 2010 Annual Asset Review as one of the commodities that will outperform for the next decade (click here for that report).

Like all other hard assets, copper is a direct beneficiary of the QE II rumors now sweeping the financial markets (see above). In the old days, such a move by the Fed ritually delivered strong bond prices and a weak dollar. In the 'new normal' it also triggers a tidal wave of buying things that hurt if you drop them on your foot, like precious metals (GLD), (SLV) industrial metals, coal (KOL), and iron ore (BHP).

These are the 'new dollars' with the unique attributes that they can't be made with a printing press, aren't being made anymore, and the number of potential consumers is growing by 175,000 a day. If you don't believe me, then check out the World Population Clock by clicking here.

Gotta Love Those Hard Assets

Featured Trades: (MY Q3 PERFORMANCE),
(CORN), (DBB), (SSG),
(GLD), (SLV), (PPLT), (PALL),
(ECH), (TF), (IDX), (TUR), (EPOL), (EWY), (EWS),
(FXJ), (TBT)

1) My Q3 Performance. Today is the autumnal equinox, the day when the sun crosses the equator and heads southward to the Tropic of Capricorn at the 20th parallel. The moon is full, and night becomes longer than day. This is when pagan civilizations sacrificed virgins to assure the return of the sun in the spring.

As my days get longer and the sun sets earlier I find myself completing my daily hike down Mount Diablo late, my contemplations about the market interrupted by packs of howling coyotes, hoping I don't step on a Western rattlesnake in the darkness, yet again. Sometimes I have to skip adding the 30 pound log or rock I use to keep my shoulders and quads in shape. After all, the next forced march in Iraq or Afghanistan is only a phone call away. Until then, the High Sierras will have to suffice as a motivator.

I was expecting a boring summer and got a sizzler instead. Corn (CORN), wheat (DBB), soybeans, sugar (SSG), gold (GLD), silver (SLV), platinum (PPLT), and palladium (PALL), the subjects of years of painstaking research, all paid off big time by going ballistic. Emerging markets in Chile (ECH), Thailand (TF), Indonesia (IDX), Turkey (TUR), Poland (EPOL), Singapore (EWS), and South Korea (EWY) also made generous contributions. I wanted to short the yen (FXJ) and Treasury bonds (TBT), but took a nap instead, sparing myself much grief.

This equinox marked the passing of long time friends, like CNN correspondent John Lewis (click here for the obit) and Murray Sayle (click here for his piece).

It also heralds the onset of the most treacherous time of year for stock investors. There should be some substantial selling to beat imagined increases in capital gains tax rates from 15% to 20%, once the November election is out of the way. There will also be sacrifices of a different sort, as unfortunate managers playing catch up desperately reach for performance. That may be what's powering the current low volume rally in stocks.

I have heard of too many advisors who panicked and sold their clients out, close to the 2009 bottom, chased the market back in front of the 2010 Q2 top, taking yet another hickey. Thus, I expect the bloodletting to be fierce and unforgiving when they are fired in December, such is the cruel and heartless nature of our business.

Looking for Fresh Meat

Featured Trades: (JUNK BONDS), (JNK), (HYG), (PHB)
SPDR Lehman High Yield Bond Fund ETF
iShares iBoxx High Yield Corporate Bond Fund ETF
PowerShares High Yield Bond Fund Portfolio ETF

2) Are Junk Bond Investors Paying Rolls Royce Prices for Jalopy Securities? One of my more prescient calls of the past two years has been to move readers into the junk bond arena (click here for my '2009 Annual Asset Class Review'). My argument then was that the market was discounting a default rate of 14%, but that the realized default rate would be a tiny fraction of that.

This turned out to be true, prompting the (JNK) ETF to deliver a parabolic 80% return, not bad for a bond fund. Similar gains were seen in the other junk ETF's, like (HYG), and (PHB). However, it looks like this market is returning to the bad old days that we saw at the last top of this market in 2007. Inferior credits are now flooding the market with dubious conditions, lax covenants, but premium terms, taking new issuance up to an unbelievable $172 billion during the first nine months of 2010. Banks may not be willing to lend, but investors of every stripe are more than happy to. Investors are once again paying Rolls Royce terms for jalopy credits. Apparently the reach for yield knows no bounds.

If you haven't started to sell off your position in this area, I would begin to do so. What seemed like a riskless yield with (JNK) at 18% last year doesn't seem like such a bargain now at 10.8%. Use the current strength in the equity market to take profits at these very rich prices. When credit quality once again becomes an issue, these will be the first securities to drive into the ditch.

Rolls Royce Prices for Jalopy Securities