Featured Trades: (QE3 HAS ALREADY STARTED)

2) QE3 Has Already Started. Most analysts have missed the fact that QE3 has already started in earnest. Of course, it would have been easy to miss. Ben Bernanke has not made any grand pronouncements. He hasn't done some public thinking out loud, as he did among friends at Jackson Hole, Wyoming last August. It is not even called 'QE3'. Think of it as a 'stealth QE3'. But make no mistake. A new variety of quantitative easing has already begun in a big way, and is generating its desired effect.

The new QE3 is the 'RISK OFF' trade. QE2 ended up pouring $600 billion into stocks, commodities, oil, gold, and silver. Since April 29, the prospect of slowing economic growth has prompted this hot money to take flight and bail from these assets classes. Think of it as the same $600 billion stampeding into risky markets, doing a 180, and then stampeding right back out against.

Where is all this money going? Into the Treasury bond market. We have in fact been in new bull market for bonds since February, taking the yield on the ten year Treasury down from 4.10% to 3.10%. If the current 'RISK OFF' trade continues, or even accelerates, we could see ten year yields down to 2.0%-2.5% by the end of the summer.

In the ultimate irony, we might even see bonds peak and risk assets bottom on June 30, the day QE2 ends. Given the way that events compress and accelerate these days, I would not be surprised to see things unfold this way. This is why I have been selling short puts on the long bond ETF (TLT), and avoiding bearish bets on bonds, like the plague, such as the (TBT). It is also why I have been piling on shorts in oil and stock at every opportunity.

There is no doubt that this is Ben Bernanke and Treasury Secretary Tim Geithner's plan, and they have voiced as much to Washington confidents in recent weeks. The beauty of this plan is that it has no government fingerprints on it. They are getting private investors to do the heavy lifting for them. That will make them immune from attacks from anti-interventionists, like the Tea Party, and anti-Federal Reservists, like Ron Paul. Bernanke can just sit back and let natural market forces do his handiwork for him.

Clever Ben, clever.

Of course Bernanke cannot employ this strategy forever. Eventually the expiration of Obama's many stimulus programs, the end of the Bush tax cuts, a growing drag by the state and municipal sector, and a worsening structural unemployment problem, will slow economic growth enough to where the Fed will have to take real action. Then they will have to launch a real QE3, or face another Great Recession, something the administration would rather not see in an election year.

Keep in mind that the next Recession will be far worse than the last one. None of the problems of the 2008-2009 debacle, like too big to fail, the real estate collapse, and the burgeoning bad debts on bank balance sheets, have really been solved. The can has merely been kicked forward. The only difference will be that there will be no TARP and no bail outs next time. The chips will fall where they want.

This all means that you better keep running your shorts and make some serious coin from the unfolding 'RISK OFF' trade while you can. Look out below.

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What Do You Have Up Your Sleeve, Ben?

Featured Trades: (THE BEAR CASE FOR OIL), (USO), (DUG)

3) The Bear Case for Oil. Let's do some out of the box thinking here. Let's say that the global economy is really slowing down. The demand for oil will fall. Let's say that China continues to raise interest rates, slowing its economy further. Then Chinese oil demand starts to wane.

Then we bring on stream new US onshore supplies opened up by advanced technologies in places like the Bakken field in North Dakota. Then current high prices at the pump deliver a summer driving season that is a shadow of its former self. Next, the exchanges get religion and decide to damp down speculation in earnest by raising margin requirements on oil.

Now, let's thrown in an outlier. Muammar Khadafi chokes to death on a bad falafel, bringing the Libyan civil war to an immediate end, and unleashing 1.2 million barrels a day of light crude on the European market.

What I have just outlined here is a perfect storm for oil prices. It's not that these are low probability events. They are in fact the most likely scenario that will unfold over the next three months. And they are all likely to hit at the same time, taking crude down to the bottom of the last year's range of $84/barrel.

So I think that it is prudent here to start adding some short exposure for oil. Selling short the US Oil Fund (USO) might be a good idea, which has one of the worst tracking errors in the ETF world, and never fails to rob investors blind. Play this from the short side, and these gross inefficiencies work in your favor. When I employed this strategy through the put options in March, I scored a near double in just five days.

Just to add a little kicker to your short oil play, you might buy the (DUG), a -2X inverse short ETF on the oil majors now trading at $29.25. Falling oil prices will lead to plunging oil company profitability, shrinking PE multiples, and sharply declining stock prices, all of which work in favor of (DUG). Throw in a broader global risk off trade, and this thing works with a turbocharger.

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'We live in a nominal world right now. Inflation is going up modestly, so the dollars we are making are nominal dollars, not real dollars,' said legendary value investor, Leon Cooperman, of Omega Advisors.

Featured Trades: (THEY'RE SHOOTING ALL THE GENERALS),
(GS), (AAPL), (FCX), (GOOG)

1) They're Shooting All the Generals. Those looking for guidance on the medium term trend in the market better take a look at the best of breed, benchmark stocks for the leading sectors; the companies traders call 'the generals'. I am talking about Goldman Sacks (GS), Apple (AAPL), Freeport McMoRan (FCX), and Google (GOOG). They are all telling us that the market peaked last February, not on April 29, as the indexes are suggesting.

When the charts for the stock prices of the best run companies in the most profitable industries are rolling over like the Bismarck, you know that it is time to bail out. That is why I have been a seller of rallies, not a buyer of dips for the past three months.

If you are one of those cynical, glass is half full, tough to convince investors, then take a look at the chart of the financials ETF (XLF). It also peaked in February and has been in a clear downtrend since. There is no way the S&P 500 can make progress when one of its heaviest sectors is suffering from Montezuma's revenge.

Still unconvinced? Check out the bottom chart of trend lines for the S&P 500, when I lifted from my friend, Dennis Gartman of The Gartman Letter. It indicates that we broke a steep trend line in February and are imminently about to break a much more shallow trend line this week.

The bottom line? The best case is that we are nearly three weeks into a 10% correction that will take us to the 200 day moving average for the (SPX) at 1,234; the worst case is that a new bear market has started. Look out below!

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Featured Trades: (CHEWING THE FAT WITH HARRY S. DENT)

2) Chewing the Fat With Harry S. Dent. Given the fresh dose of uncertainty besieging the markets these days, I thought I'd touch base with my pal, co-conspiring Eagle Scout, and fellow traveler, Harry S. Dent. Harry runs an independent research boutique, which has accurately predicted many of the major moves in financial markets during the past 25 years.
Harry believes that the economy is fizzling because QE2 had a smaller impact than QE1. The Federal Reserve's second monetary stimulus program generated only 2% in additional GDP growth, proof that it is fighting a losing battle. High oil and commodity prices will provide the coup de grace, forcing consumers to retrench further. We won't see this in the data for a couple of months. Once a more serious slowdown appears, Ben Bernanke may entertain a QE3, despite his indications to the contrary.

Residential real estate continues to provide a relentless drag on economic growth, and will worsen. Be happy you aren't trying to sell a house in Florida, where 18% of the homes are already vacant, compared to 16% in Arizona, and 14% in Nevada. Amazingly, some one third of the houses in Naples, Florida are empty.

Growth of the national debt continues to be a major headache. Since the Great Depression, public spending has grown steadily, from supporting small town 'Mayberry' to the equivalent of a New York City. While much of the early deficit explosion resulted from WWII and Vietnam, all of the recent growth has come from entitlements, like Medicare and Social Security. Government estimates of $46 trillion in unfunded liabilities are wildly inaccurate, with $70 trillion closer to reality.

Harry's advice to investors is to use any strength in coming months to unload stocks. He would sell all remaining holdings in gold and silver. He also wants to dump oil and other energy plays. And he believes we are about to enter a prolonged period of dollar strength. His favorite vehicle for the greenback is the ETF (UUP), which offers investors a long position against a basket of foreign currencies.

Harry is a native of South Carolina, who like Federal Reserve governor Ben Bernanke, improbably went off to Harvard where he got his MBA. His career then took him to the top notch management consulting firm, Bain & Co. After years of consulting with Fortune 100 companies, he found gaping holes in their understanding of the global economy. That spurred him to take off and create his own research boutique to address these grievous shortfalls in understanding.

To learn more about Harry S. Dent, please go to his website at http://www.meetharrydent.com/

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