Markets have been pretty active and there are some very good trading opportunities on the horizon. In my opinion the trade that makes the most sense in risk/ reward terms is to short the US Long Term Government Bonds.

Some very experienced macro managers like Jim Rogers, Marc Faber and Doug Casey have been expressing their concern about an eventual collapse of the US bond market

I believe that the policies governments are pursuing all over the world and especially in the United States are highly inflationary. They are running the printing presses as hard as they can. The result of these actions has to end in inflation. Furthermore, the United States government won`t be able to pay the debt unless it monetizes it via the printing presses once again.

This environment is very bullish for gold and hard assets. I urge you to consider buying gold and gold related assets like gold miners.

I always like to read and listen to veteran investors. Veterans are persons who have long experience or practice in an activity or capacity and these fellows have gone through booms and busts and normally know a trick or two about the markets.

Jim Rogers, the legendary investor, has been a frequent speaker on financial media over the last few weeks and is very bearish on the stock market. Recently he said to an Indian TV Channel, “I have sold all my stocks everywhere in the world, except for some stocks in China. I bought some more stocks in China in October and in November but I am not buying shares anywhere in the world.”

How are Oil ETF`s performing year to date? The performance is actually quite different, with the leveraged DXO performing better than its peers. DBO is up 1.75% for the year, while OIL ETF is down 7.7%. The most traded oil ETF, the USO tracking ETF is down 2.3% for the year. The difference is probably on how they have managed this supercontango in the crude oil futures.

USO ETF: -2.3%

Three of the best known commodity investors are bullish on oil at this very moment. They all have talked about oil recently and it seems that both Marc Faber and Jim Rogers are holding oil, and Boone Pickens while still licking his wounds from the losses at his BP Capital hedge fund is talking oil up even if he is staying on the sidelines. Boone Pickens said this week that "oil prices in the 40 a dollar barrel are not going to last much longer."

Marc Faber said to CNBC that "I would say, the long-term demand for oil is there. The supply won't be there. So, long-term, I think the price will be much higher than it is today" while Jim Rogers said something very similar, "Oil Reserves are dropping 7% a year and these drop in reserves will cause serious supply problems in the near future." Jim Rogers concludes "Oil will make a big comeback."

Retail investors median consensus oil price for 2009 is 60 to 70 dollars a barrel and 55% of retail investors predict oil to end 2009 between 50 and 80 dollars a barrel. This data is from a survey taken in the Oil Traders Blog about how high the oil price would be at the end of 2009.

In the more extreme scenarios, 3% predict oil to end 2009 between 10 and 20 dollars a barrel and 17% predict that oil will end 2009 above 90 dollars a barrel. The ultra bears that predict prices below 20 dollars a barrel have been diminishing by the minute. Just 4 days ago, 13% were predict oil to end `09 between 10 and 20 dollars a barrel. Quite a drop in the ultra bear camp, probably due to this recent rally.

Is 2009 going to be an exciting year for oil? Institutional investors don`t think so. Their estimates are very similar - much of Wall Street expects oil prices to average about $50 a barrel in 2009. Some of the firms and their specific forecasts:

Deutsche Bank predicts an average price of $47.50 for all of 2009; the chief energy economist of Deutsche Bank, Adam Sieminski, said recently that the demand for oil in 2009 will drop more than any other time in the last quarter of a century due to the weak economy. Sieminski forecasts oil traded in New York falling as low as $30 and averaging $47.50 for the whole year.

In religion, a prophet is a person who has encountered the supernatural or the divine and often one who serves as an intermediary with humanity. In the late 20th century the appellation of a prophet has been used to refer to individuals particularly successful at analysis in the field of economics. Now let's meet Prophet Ben Bernanke.

In a speech made more than 6 years ago before the National Economists Club, Washington, D.C., Bernanke wrote:

Contango is the deepening discount of near month oil futures contracts against later months. This little monster is scaring investors off simple passive funds such as USO, DBO and OIL which helped drive the big oil rally in the last six years.

Passive index plays like USO and OIL found big profits during much of oil's rally to over 147 a barrel in July by selling front month futures contracts and buying cheaper ahead the curve contracts, something possible only in a market structure called backwardation.

Even with this bigger than expected cut, crude oil futures are trading down sharply. Sentiment is still very dark in the oil market and demand is falling rapidly.

Oil is going down on good news, and we expect even lower prices ahead. Oil traded lower with the dollar having its worst day ever against the euro and with a bigger than expected cut by the oil cartel. Crude oil futures dipped below 40 dollars a barrel for the first time in more than four years and yesterday the API said supplies climbed for the 11th time in 12 weeks.

Rumors about the size of Barack Obama's stimulus package sent oil prices higher this morning. People familiar with this matter say that the stimulus package may reach 1 trillion dollars versus the half trillion considered just two weeks ago. This is very bullish for crude oil prices because its a very inflationary measure and is a possible real stimulus for a very depressed economy (read full article).

Chinese Oil Demand Drops

IEA said that the Chinese economy is slowing, according to diverse indicators on manufacturing, power generation, retail sales and trade. The growth in passenger car sales has virtually stalled since last summer, after rising at double digit rates for several years in a row.

Goldman "Downgrades" Oil to $45

Goldman Sachs, one of the largest energy traders in the markets, lowered its 2009 price forecast for crude oil to $45 a barrel. Goldman Sachs' last estimate for 2009 was 40% higher.

"We revise down our 2009-2011 crude oil price forecasts in view of a more severe than expected deterioration in oil demand globally," Goldman Sachs analysts wrote on the report.

The short squeeze I predicted three days ago is under way, helped by a weaker dollar and better stock market sentiment. Russia is preparing to announce that it will work with the Organization of the Petroleum Exporting Countries (OPEC) to coordinate a reduction in output. (The full article on Russian output cut can be found here.) This is positive news for oil bulls. Oil may continue its upward move to $50 a barrel in the next few sessions.

Oil Volatility Reaches 22-Year High

Oil rebounded sharply after Barack Obama pledged the biggest U.S. public works program in about 50 years to revive the economy. This plan includes spending on roads, bridges and repairing school buildings and will boost raw material demand.Oil had fallen for the last six trading sessions and rose yesterday for the first time in seven days, gaining as much as 7 percent, even though oil`s performance is still way down in all time frames.

Oil`s Performance

1 Week: -10%

Crude oil just had the biggest weekly drop since the Persian Gulf War in 1991; since November 28 alone, oil is down 25 percent. Quite a drop.

The sentiment in the oil pits is that “It’s all about the economy” and “There’s not much that can be done right now to keep prices from falling off a cliff”. Major pessimism is set in and Merrill Lynch is even predicting 25 dollar oil.

Is it to soon to re-enter oil stocks? Oil stocks are down 11% year-to-date and down 21% from the year high established on May 20, responding to the 20% drop in oil prices.

Yesterday, IEA, the International Energy Agency, raised its forecast for global oil demand in 2009 and said that it expects Chinese oil consumption to rise after the Olympic Games. This might be a good backdrop to an oil stocks recovery.