Commodity Bubblicious

Gary Kaltbaum is an investment adviser with over 25 years experience, and a Fox News Channel Business Contributor. Gary is the author of The Investors Edge. Mr. Kaltbaum is also the host of the nationally syndicated radio show “Investors Edge” on over 50 radio stations. Gary is also editor and publisher of “Gary Kaltbaum’s Trendwatch”… a weekly and monthly technical analysis research report for the institutional investor. If you would like a free trial to Gary’s Daily Market Alerts click here or call 888.484.8220 ext. 1.

Commentary for October 25, 2010

A few notes before the market…

On a somber note…and as a lesson to all you parents and all you maniac drivers. Two weeks ago, I was in North Carolina as my wife and I were Godparents to a beautiful baby girl. After the Christening at Church and a small celebration at lunch, we left in two cars back to the house. As we were driving about 40 MPH down a two lane neighborhood road, a 20 year old female decided to play Speed Racer – coming at us between 80 and 90 MPH. Unfortunately, she hit a dip in the road, lost control and hit smack into the other car we were with.

Both cars literally blew up as engines and car parts flew a couple hundred yards. The grandfather died instantly. The grandmother has two broken arms, a broken neck and various other injuries. The mom shattered one of her legs and has already had three surgeries. The sixteen year old niece also shattered one of her legs, had glass and car parts hit her face and also lacerated her liver. If not for the great work of the EMTs, she would have also passed away.

The girl who caused the accident was ejected from her car and was amazingly uninjured. The two kids in her car were injured but will be ok. The book was thrown at the young girl…assault with intent to kill, involuntary manslaughter and a bunch of other stuff. A $1 million bond insures she will not get out. I URGE EACH AND EVERY ONE OF YOU — TAKE IT SLOW!

I will never forget the scene as I was calling 911 and running up to the car…knowing and then seeing someone close to my family, slumped over the airbag and steering wheel, passed away while with others were injured badly, all because of one dumb decision that changed the lives of many and killed a grandfather in a nanosecond. I have doubled down on my defensive driving. We always read about other people’s misfortune when we read about accidents in the paper. I must tell you firsthand, don’t let something bad happen because of your own stupidity.

Now my comments on the economy….

I find it somewhat ironic the rest of the world is moving away from socialism as this country moves more toward it. The rest of the world is realizing that it doesn’t get you anywhere when you pay the unemployed more money to not work than to work. The rest of the world is realizing the biggest problem with socialism is that you always need other people’s money in order to continue but like every Ponzi scheme, eventually you will run out of the money. Which leads me to next week’s election.

The unofficial, erratic and all over the place Kaltbaum vote-meter tells me the “Republicons”…I mean the Republicans… will take at least 60 seats in the house and maybe 70 from the Socialist party. I do not believe the Senate will change hands as I see a 50-50 tie or 51-49 to the Socialists. The best news is last I looked, the house appropriates all money. But do not rest easy. The faux deficit commission will be coming out with their faux report on what needs to be done. You know what that means…hold on to them wallets.

The impotent Fed is doing everything possible to lift asset prices at the expense of the saver and of course at the expense of the dollar. They are crushing the dollar on purpose. (And don’t believe a word the tax cheat says!) Since they can no longer lower rates to stir the economy, they figure this is the next best thing. Well, maybe in the short run. But you know what happens in the long run…always something bad.

The Fed has been great at one thing…creating bubbles…and trying to create another one, they are. Unfortunately, the only bubble they will create is inflation in the next 2-3 years. Remember, bad policy does not equal to immediate problems…but problems down the road. You do recall my warnings early on about the credit and housing bubble. I was laughed at…until it finally hit. All one needs to do is watch commodity prices…which have already started their explosion to the upside. This will continue…not in a straight line but it will continue. If commodity prices continue to soar, the cost of goods sold and eventually the cost of goods bought have to go up…which squeezes everyone down the food chain. But don’t worry; Mr. Bernanke says there is no inflation.

As far as the market…so far, so good with a few distribution days mixed in. My reports entitled “A Low” and “The Low” turned out to be prescient…but now what? I say continue to play it out until the stair steps up stop…action that we all know what it looks like when it occurs. The NEW HIGH LIST has expanded, leadership continues and more and more areas are showing up. For instance, this past week, we saw the RESTAURANT group break out nicely.

For sure, the averages are stretched here and due for a pullback…but as of this second, I believe any pullback will be controlled and rotational. If things change, I will let you know. Speaking of the dollar, keep in mind there has been a direct correlation between a slumping dollar and rising commodity and equity prices. I wouldn’t be surprised if we do get a dollar bounce leading to some corrective work but not until after the typical month-end pop. My guess – we could get a “sell the election” pullback, but that’s just a guess.

The one area that still has not even broken out of intermediate resistance is FINANCIALS. Normally, I would tell you that it is a big negative for the market as the FINANCIALS have most always been a harbinger for the market. But right now, they have had little influence…and the only thing to think about it being underweight the area until the group does indeed break above resistance. Otherwise, as long as I am seeing leadership, as long as I am seeing some of the big growth leaders leading and as long as I am not seeing big breakdowns in the market, I would continue to stay with it. Just know that as it becomes noisier, we will be getting closer to the end of this move.


Disclaimer: The opinions expressed herein are those of the writer and may not reflect those of Wunderlich Securities, Inc. or any of its affiliates. The information herein has been obtained from sources believed to be reliable, but we cannot assure its accuracy or completeness. Neither the information nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. Any reference to past performance is not to be implied or construed as a guarantee of future results. Securities offered through Wunderlich Securities Inc.