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Tuesday, May 31, 2011

In-Sync with Gary of Smart Money Tracker

Gary of the Smart Money tracker has a paid service, pretty much the only one I pay attention to anymore. Why? The chart trackers are terrible future predictors, but are good for indicating turning points. The chart trackers also do not take into consideration that the "real world" has changing rules, such as the Federal Reserve Bank's ability to print money.

Gary recently waffled in the last thirty days as the final near-term rally of gold is underway. As a result, I have joined him in staying out of metals.

Gary has laid out his multi-year view. I encourage readers to purchase his service, for I think Gary is smack on, and it is in-line with my view.

I am going to recap my view, but it parallels Gary's. For this reason, I'll avoid putting up charts and going into a deep explanation that Gary has, for it could be viewed as stealing his pay-post.

The market will roll over with the global economy. Europe, China, and America are all showing obvious problems with their economies. Once the market rolls over significantly (15%? 30%? 50%?) lower, the Federal Reserve bank will be encouraged to do respond with "what they know". For the Federal Reserve Bank is not able to control any other aspect other than monetary policy. This reaction is wrong, and allows the politicians to defer to the Federal Reserve bank to "fix" the economy.

The problem isn't the Fed's monetary policy at this point, but is a much broader, structural problem that can ONLY be fixed by politicians. The Federal Reserve Bank actions ENABLES politicians to avoid making hard decisions for now. Eventually the Fed's actions will totally become ineffective, and then the politicians will have no choice but to act. But by then, the problems in 2008 will seem easy, as we have magnified all the issues since then.

Once the Fed resumes printing, there will likely be a nice market rally, with a resumption of it falling. The dollar will start to decline after a nice, large rally from the pending market decline.

And here is where the epic divergence will begin. The market while spiking up, will overall trend down as profit margins are compressed. The dollar will resume trending down, with spikes up for each market decline (flight to safety).

But contrary to a recessionary environment, some sectors of resources will trend up. Why? Global political tensions, fiat currency issues, and yes, overall consumption.

Of all the possible resource sectors, me and Gary expect precious metals to do well. I dare to venture to say that other resources such as Oil, Food, and other resources will either maintain price in a range, or rise. This falls in line with my pontification in 2008 that Americans will see their lifestyle significantly degraded as Chinese citizens gain wealth, meeting at a closer equilibrium in the years ahead.

On my party, I am going to rely heavily on Gary for the green light to get back in the markets, after a decline. The markets may in the months ahead hit new highs, I will sit out. For when the rally ends, the decline COULD be sudden. I'd rather not play this one, for I don't think the remaining upside percentage is as great as the potential DOWNSIDE snapback.

Overall, I am in agreement with Gary, and as mentioned at the start, he has an excellent post from this past weekend that goes into great details about market cycles, charting, and bringing it together with current political policies.

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