Bubble Bubble Bubble...The New Recovery

With bank stocks now mostly back to levels not seen since last Summer...the million dollar question is "Are We Out of the Woods?"?

That's a question that has a two part answer.

I am confident that the recession as we know it is OVER, but I am also certain that happy days are not here again.

The government chose to massively dillute the dollar by putting well over ten trillion dollars on the line to bailout our financial system.  They chose the side of shareholders of banks rather than the taxpayers.  Instead of choosing who fails and who succeeds, they have decided everybody succeeds.  AIG, Fannie Mae and Freddie Mac are nothing more than dispensaries of welfare payments to financial institutions and governments around the world of American taxpayer dollars.  This will succeed in ending the recession for now.  By finally  having success in destroying the dollar will stimulate exports and grow our economy but in the end will create a big inflationary environment which willl ultimately put us back into a recession, and the next time there may be no easy out.  But enjoy owning stocks for now because they are going higher as the dollar continues to weaken, especially foreign stocks.

You increase your balance sheet so much, the world will soon begin to notice.  As emerging markets begin to recover and Europe and Japan begins to resemble some health, the US Dollar will begin the collapse that everyone has been calling for years, with gold indeed going to $1500 and beyond.

The game of the Federal Reserve growing its balance sheet by buying all sorts of government securities will show its adverse effects soon.  The pot of money that the Federal Reserve, FDIC, US Treasury, Fannie Mae, Freddie Mac and now General Motors and Chrysler uses are all the same, as they ultimately come from taxpayers.  You can move them around all you want with various tricks but it's nothing more than family members issuing debt securities to each other and continuing to bid it up in an effort to keep the "yield" low.  Sooner or later China and Japan will find better investments than US Treasuries, I'm sure of that.

So what can one expect of the stock market?  Reflation.  I do think financial stocks will continue to do well because when you give an industry 10 trillion dollars of free money, how can they not do well...when you get money from the fed and depositors at 0% and lend them out at 10-20%, you have to make enough money to overcome your ongoing losses from mortgages, credit cards and commercial real estate.  Energy and Mining will do well because China and India are racing towards supremacy while the US, Japan and Europe are wounded...and also for the fact that they thrive when the dollar is weak.  I think travel related stocks like Starwood, Priceline, Carnival, Disney and even United Airlines will do better.  Canadian energy and mining stocks are the best because you get an extra kicker of having loonie denomination.

What will underperform?  Businesses that have no international footprint.  Retail stocks like Kohl's, Target and Autozone.  Restaurant stocks like Darden, Chipotle and Brinker (exception being Yum and McDonalds who have huge global presence) and telecomunication stocks like AT&T and Verizon.

I only know how to trade one way, which is betting against the dollar.  That worked really great in 2007, got me completely crushed in 2008 and so far has worked well in 2009.  We'll see what the rest of the year brings.