Monday, June 12, 2006


This week, the word INFLATION is going to be in the news. Investors should realize that inflation is a lagging economic indicator. The price increases in oil prices and commodities,that happened last year, have been showing up in government inflation numbers this year. It is very important for investors to realize that inflation is being well contained by the central bankers of the world. A sharp turn has been made in commodity prices. The evidence showed up first in the stock markets of the Middle East, Dubai and Saudi markets are down about 50%. Now that the move has taken hold, it is showing up in other emerging international stock funds, in the price of gold, oil and other commodities and in the "flight to quality" moves of the "safe havens".

The last few days of June and the first few days of July are going to be interesting. The FOMC meeting and the deadline for the Iran deal fall together. Just before the congress goes home for the Fourth of July Holiday. From then until November, a lot of campaigning is about all the congress will do. Pension reform, immigration reform and other bills are pending. One can never count on congress meeting a deadline but the house-senate leadership says votes will be taken before the recess.

After, the last of the "bad inflation numbers" are reported this month, there should be good news between now and the election. The 4 year presidential cycle suggest that stocks will sell off before the election. The market likes a dead locked congress. It is interesting that the current congress is dead locked because of disputes among the Republican majority. Some market forecasters fear the take over of the house by the Democrats. I think the Republicans, with the help of lower oil prices and progress in Iran/Iraq, will pull out a rabbit and retain control. What does all this have to do with investing?

The point is that in a period of negative sentiment, fear of every possible problem is in the news. These are the times to buy, buy and buy some more. The negative sentiment abounds and includes a very low popularity rating for the President and the Congress. However, the market traditionally does very well when the popularity ratings improve to 35% and continues to do well until it reaches 50 to 55%. I am confident that gains will be made by the President and the Congress between now and the election. Therefore, I discount the four year cycle. If I am wrong, valuation should keep the market from falling much and the big rally will start after the election. In any event, I want to be fully invested when the rally starts. The next move is going to be LARGE. I hope you are fully invested when the BULL stampedes. Send me a note if you want to talk about it, better yet join our group