By Tim Evans

Economic Bailout Fallout: Hyperinflation?

By Matt Roma

“The main cause of hyperinflation is a massive and rapid increase in the amount of money, which is not supported by growth in the output of goods and services. This results in an imbalance between the supply and demand for the money…” –Wikipedia

We have to step back and take a good long look at our economy today. These are times many of us have never seen the likes of before. The economic crisis facing our country, and the world for that matter, is going to take some time to work out. I believe there will be many adverse effects on the economy that many have not foreseen, or maybe they have and decided it is worth the risk for short-term stability. Today we are talking about deflation; tomorrow it could hyperinflation. (more…)

Treasury Bubble Part II: Three-Month Yield Turns Negative

by Phil Streible & Richard Ilczyszyn

Risk-aversion has been driving investors, and they have been rushing into U.S. Treasuries. Yields have been pushed down to historic lows across the yield curve, and in an unprecedented development, three-month Treasury bill yields have actually turned negative. The Treasury bubble is blowing up, but we think the air will eventually be let out. We recommend buying puts in the Treasury bond and note futures now. Investors will lose their fear as the stock market improves, and the safe-haven play dominating the markets over the past couple months will likely be unwound. It could result in a significant move lower in futures prices, which trade inversely to yields. (more…)

By Tim Evans

We have seen an interesting situation in gold futures prices in early December as a result of increased demand—called backwardation. That means prices of near-month futures were trading higher than the farther-out contract months, an unusual occurrence in the futures markets. I think that means there’s opportunity now to buy 2009 gold options for a first-quarter bounce. (more…)

By Jeff Friedman

The Treasury Bubble

By Richard Ilczyszyn

The fear and the volatility we’ve seen in the past few months in the stock market has driven investors to safe-haven instruments like U.S. Treasuries, and prices for Treasury bonds and notes have soared. It’s looking like the next big bubble. Like any bubble, I think it will eventually burst. I recommend buying puts in the Treasury bond and note futures now, as these markets could come down hard, and fast. As it’s impossible to say when that will happen, options are a good way to allow you more flexibility in the timing if the bubble continues to build a while longer. You’ll also have the benefit of defined risk. (more…)

By Jim Comiskey

The markets have continued their volatile ways. It has been two months of sharp drops and big rebounds. Overall, the stock market and many commodity markets have trended much lower and it’s really hard to call a bottom in these markets. (more…)

Stocks Decline, But Indicators Looking Better

By Jeff Friedman

Stock index futures are down this morning amid bleak news globally on the manufacturing front, but the big question on many people’s minds is whether the bottom is in after a strong finish to November. The past couple months have been a bloodbath, but there seems to be an abatement of fear in the past few days, ever so slightly.

Stock index futures saw a five-day streak of gains to end the last week of November with their best weekly gain in 34 years, according to Bloomberg. The Dow Jones Industrial Average rose nearly 10 percent in the holiday-shortened week, to 8829.94 points; the S&P 500 gained 12 percent, to 896.24. (more…)

Stock index futures surged on news the Federal Reserve will commit as much as $800 billion to revive lending, with the December S&P 500 futures last trading up 21 at 869. The S&P 500 has rallied 13 percent from an 11-year low on Nov. 20, and posted its best two-day gain since 1987, according to Bloomberg. Lind Plus Senior Market Strategist Jeff Friedman said technical indicators, the Stochastics and Relative Strength Index (RSI), are turning neutral and hinting at some relief. However, he’d like to see closes in the December S&P futures above the 20-day moving average at 896 to increase confidence a near-term low has been posted. If the market turns lower, he said the 75 retracement of the 2002-2008 rally marks the next downside target, at 717.

Stock index futures are down in early trade after more somber news from the housing front. U.S. housing starts and permits for future construction both dropped to record lows in October, signs the housing downturn may extend into a fourth year. The Commerce Department reported residential construction starts fell 4.5 percent in October, while building permits dropped 12 percent to the lowest level since 1960. Inflation appears to be a non-issue, as a separate government report showed the consumer price index fell 1 percent in October, the biggest drop since 1947.

Despite all the doom and gloom, apparently there are some investors are optimistic about the stock market’s prospects. According to an investor survey conducted by Merrill Lynch, 36 percent of the 180 investors surveyed said they were now “overweight” U.S. equities, the highest since at least 1998 and double that of last month. Thirty percent also said the outlook for earnings in America was “most favorable.” Read the full article as reported on Bloomberg.

Lind Plus Senior Market Strategist Jeff Friedman said Tuesday’s stock market gains were somewhat of a surprise given weak fundamental news, dubbing the rally as a combination of bargain-hunting and short-covering. “Economic news continues to be grim and likely will be for some time. The market is going to have a hard time rallying significantly. We are still in a bear market,” he said. Friedman said a move in December S&P 500 futures above 884 should bring 900 in view, and a move over 905 – 910 will chase away some of the bears. He said support is at 838 today and expects 832 – 825 to hold.