October 27, 2010 - Here Come the Seventies Again

Featured Trades: (THE COMMODITIES BOOM)

1) Here Come the Seventies Again. Better drag your leisure suits, bell bottoms, and Bee Gee's records out of the attic. The seventies are about to enjoy a comeback. The near universal run all commodities are enjoying now takes me back to that time in my youth when making money was as simple as buying an ounce of gold, a barrel of oil, or a bushel of corn. Cotton hit its highest price since the Civil War yesterday, when Union a blockade of the South sent prices skyrocketing (see Gone With the Wind). (Smart Alecs out there please don't bother to ask if I fought in the Civil War. That was my older brother).

QEII is truly lifting all boats, even the leaky ones, like the US stock market. The debasement of the dollar this policy assures will keep money pouring into virtually every tradable asset in the world, including stocks, bonds, currencies, commodities, precious metals, and yes, even real estate. The great thing about QEII is that Ben Bernanke doesn't have to do it, he only needs to think it, or to hint about it, and the private sector will execute it for him. Has anyone noticed that is exactly what's happening now, with all asset prices rising in lockstep globally?

I have a feeling that this love fest is going to end the same way it did in the eighties too. The Fed knows it is creating a monster with the enormous amounts of money it is now creating, and that someday, it will have to drive a giant steak through its heart in the form of huge and cathartic interest rate rises. That will not happen this year, or next. But when it does my prediction that the short Treasury bond ETF, the (TBT) will roar from $30 to $200 could look conservative.

Until then, party away as if you are an extra in John Travolta's Saturday Night Fever. The Japanese have a wonderful expression that applies here which I constantly heard throughout the eighties: 'When the fools are dancing, the greater fools are watching.'