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October 24, 2005

Confusion reigns, Mon., Oct 24, 2005, 5:25 PM

On Friday I asked if inflation fears were abating. I said I had to put some extra time into studying individual charts because I was nervous that just maybe there was a shift underway.

Friday was a disaster for the Bulls going into the close (from 2 to 4pm), but then today there was a rocket right from the start. If I was confused on Friday, then after a whole weekend deep in analysis and thought, I am even more confused. I sensed something like today might happen, but I am disappointed in myself for not figuring out what's happening.

I really am stumped.

I think there was a lot of short covering today, which will help out Wall Street's friends who are in trouble with their banks and hedge funds.

But having covered, these are the traders who now can come back into new shorts. And I do believe those shorts will have a chance to play the downside.

You see, the U.S. interest rates and bond yields are rising. And they are rising faster than real wealth is being created. The yield spreads are narrowing. Inflation indexes are still growing. The Chinese Renminbi and the Japanese Yen will continue to rise against the USD. The Twin Deficits are not being resolved. Litigation and regulation is ripping apart some industries like Big Pharma. U.S. healthcare costs are still rising out of control. There is still a wide gap between the price of housing real estate and the fair investment return that is possible in that market. And rising mortgage costs are stressing that market too. The War Against Terror is not going well, and the American public is growing anxious. I could go on.

And since we all know this, we have to be watching carefully for a fundamental shift in macro drivers.

The problem is that I just can't see it.

I do see a bull market that is long in the tooth, as the expression goes. And I see that economic problems in China, like higher interest rates and soft real estate markets, are beginning to surface.

I'd like to join the crowd. It feels like maybe it's a good time.

But after a lifetime of trading, it's the long time that interests me.

I'm staying out of this rally until the weight of the evidence indicates the rally will be a long one.

Posted by Posted by Bill Cara on October 24, 2005 05:25:55 PM | Category: Cara Today in the Market