Fritz Hottinger's  Instablog

Dear Fellow Investor,

At the risk of being labeled a perpetual pessimist, or a disciple of Dr. Doom (Nouriel Roubini), let me offer a few words of caution tonight.

Do not allow yourself to get swept up in the euphoria that comes with those 3-digit upward bounces of the Dow we have seen lately.  Recognize them for what they are.  Some, the naturals, are the result of normal market restructuring - - - the ebb and flow of demand and supply.  But these do not come frequently.

Others, especially those that begin in that last hour prior to market close, could be attributed at least in part to manipulation.  You can read more about it here:

www.ustreas.gov/press/releases/hp1177.htm

http://registeredrep.com/mag/finance_stock_markets_da/

http://www.financialstability.gov/latest/hp1177.html

For those of you with a deeper sense of foreboding and perhaps a case of “administration mistrust”, we suggest you familiarize yourself with the “Cloward-Piven Strategy” if you do not already know of it. I am quite certain Rahm Emanuel does.

www.discoverthenetworks.org/groupProfile.asp?grpid=6967

At the moment the market appears healthy, the Dow resting significantly above the 8,000 level where the PWG/PPT seems wont to keep it.  And there are other positives in the air:  the Administration is promising goodies by the basketful, all to be paid for with future savings.  Government economists are telling us it has been a “V” shaped recession, and that we are on the road to recovery, “even though employment may continue to lag”.

Against these rays of sunshine, it does appear some clouds are forming. And if enough of them align themselves, we could be in for a “perfect storm”.

In reply to the government spokespeople, other economists, pessimistic and otherwise,  liken this recession to a deep “U”, or to a “W”, or an “L”, or even an “X”, from which there will be no immediate release.

The current Administration in DC is pumping out dollars as fast as they can be printed.  The word “trillion” has little meaning for most of us, but not for the foreign governments that hold our bonds.  The BRIC countries, along with OPEC,

are quietly preparing a currency alternative to the US dollar.  They cannot shoot themselves in the foot by acting too swiftly, less the US reserves they hold drop precipitously.  But a replacement for the US dollar is in the making, and when it arrives, or more likely in anticipation of it, our interest rates will have to rise.

This will stall any recovery that may be in progress.

Another impediment to any recovery, speedy or otherwise, is the uncertainty surrounding the Fed’s ability to stabilize the dollar.  Those trillions being pumped out will eventually have to be mopped up, but by whom and with what?  Thus the market sees inflation ahead while the country still struggles with its recession, an early symptom of stagflation.  This fear will continue to haunt the market until Mr. Bernanke clearly explains his strategy for turning off the money spigot and mopping up the excess.

We see the market bouncing around its present level with increasing volatility, and expect that any piece of sudden bad news could take it right back down to the 6,500 level, despite the helping hand of the U.S. Treasury team.  Thus we suggest that preservation of existing capital be your primary goal.  Take profits when and where you can.  Use these 3-digit leaps to increase your cash.

Convert portfolio holdings that have pierced or surpassed their Exit Zone.

There will be plenty of occasions to re-invest it, restoring your portfolio holdings at lower prices, i.e., when they are in or below their Entry zone.  Do not fall prey to “buy and hold” - it is not a strategy.  Use the E-Zone System for your strategy.

Best regards,

Fritz H.