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NOTE the assumptions

|Includes:AAPL, BRK.B, GE, GS, HOG, HYD, MS, Prudential Financial, Inc. (PRU), SHLD, SPY, UUP

    The Administration, and its various loyal mouthpieces, tell us all is well, "welcome to the recovery", etc. And this includes an assumption, usually unspoken, that stock prices will rise.  They clearly hope so, otherwise the huge taxpayer position in things like GM, AIG, and Citi would be underwater forever, and 'we can't have that!
    It goes without saying that, in such an environment, it is also presumed that Warren Buffet will do well. 
     
   But, interestingly to me, much of these assumptions line up very well with the expectations of well over half of the "doom and gloom" crowd. If you flit on over to Zero Hedge, probably The main crossroads of shark-jumping conspiracy theory, the nigh-unchallenged assumption currently is of an inflationary collapse, that propels the absolute price of productive assets (=stock in dividend paying companies) higher and higher. And again, Warren buffet is expected to prosper. 
   Who would have thought we would find Tim Geithner and "Tyler Durden" on the same page?  
   The 'evidence' brought up to support this is a supposed rise in money supply . . . when a significant fraction of this is bank balance sheets, which are marked to mythology, not to market. The problem with that is, to actually serve as money supply, to be offered as payment in a free market, those assets must be exposed to market valuation, if only briefly . . . at which point, much of it vanishes. Let me direct anyone doubting this to the results of various FDIC closures, where bank that re supposedly only marginally insolvent end up costing the taxpayers many millions, as their buyers demand assets be marked to market. 
  
    Gold is also enjoying a singular uniformity of opinion about its immediate future: 90% bulls. And why not? The immediate past has been stellar; and that's pretty much all that goes into the calculus of most participants. Such excesses of opinion are seldom stable, and usually lead to declines. Nothing startling about that – most long bull markers are full of scary pauses. 
    But this time, so many leverage happy, yield–hungry players have loaded up on gold, that any decline is likely to get amplified considerably. All those hedge funds, desperate to generate the alpha that will justify their "2 and 10", are piling into gold like they piled into everything else, and it will have the same result. 

    And the further away from 'the gold standard' you go in commodities, the more severe these certainties seem to get. Silver is 90+% bulls. Some of the softs are even worse. And we are now told definitively that "Oil is now permanently above $80" (Zero Hedge, again) – the ghost of Boone Pickens' lost billions will haunt that call. 
   Likewise, the $US, we are oh-so-confidently assured, is toast. This despite the fact that every other major currency is worse off (I omit the Swissie from this, as its total volume is much less). The Euro is doomed by the blatantly criminal fraud of its shaddier users, and China is an absolute catastrophe waiting to happen. 

    Note the assumptions.
    People are assuming, nearly universally, that not only is QE2 coming, but that it will have some effect. Given the verifiably teensy impact of QE 1, this is very much unfounded. They expect an inflationary pulse, when all the real data show, and in fact all not-prostituted economic theory predicts, a decline in money supply. 
    People assume that the recent 'go-go' economy is the norm, and the troubles of the last 3 years are some sort of anomaly. A quick flip through the history books will tell you otherwise – unless of course, "it's different this time". 
    Deflation is inevitable at this point, a falling safe. Credit is saturated, to the point where marginal addition is decreasing money supply. There is nothing the Fed can do to prevent deflation, but much they will try, which will accelerate it. 
   And thank goodness! The 'growth' was the result of demand artificially pulled forward, by government meddling (=low interest prices), and was therefor unsustainable. Prices must come down . . . and they will, to the betterment of frugal consumers throughout the nation. It will be painful to some, debtors and foolish lenders, but that is the bed they made.
   And this means the $US will go up. Probably up a lot, a lot more than the powers That Be would wish . . . and probably despite their repeated attempts to prevent it. 
    But when these deflationary realities forces themselves on all those monolithic inflation assumptions, there is going to be quite shock in the market places. A lot of money lost. And gained. 

My money were my mouth is: This is my deflationary expectation portfolio.

Short PRU (legacy position, but nowhere to go but down)
Short HOG (luxury, that routinely kills its owner)
Short AAPL (a little guilt here, but they are not the Apple I remember)
Short HYD (high yield muni fund – kiss of death)

jan '11 Puts on MS, GE, GS, & HOG
jan '11 & march '11 calls on UUP
leap puts on BRK-B, SHLD (splat!), & SPY
 all of the above well out of the money, save MS, GE, & GS

   These are my actual, current positions. 



Disclosure: I hold all the positions specifically mentioned.

Stocks: PRU, HOG, AAPL, MS, GE, GS, UUP, BRK.B, SHLD, SPY, HYD