SPY Gains of the XXX Olympiad

The stock market has given us over the past six weeks all the thrills of a summertime Six Flag amusement park ride. This serrated performance of risk on/risk off greed and fear rests upon the painful to watch unraveling of the European Monetary Union (EMU).

Now headlining the limited engagement of sovereign surrender of the old country to Germany is Spain. From CNBC, Wednesday night, Moody's Investors Service cut its rating on Spanish government debt by three notches on Wednesday from A-3 to Baa-3. Moody's rating puts it one notch above junk status. Standard & Poor's rates Spain two notches higher at BBB-plus with a negative outlook.

Egan-Jones also cut Spain's sovereign rating to "CCC+" from "B," pushing the country's debt deep into speculative territory.  The rating cut, Egan-Jones's fifth for Spain this year, carries a "negative" outlook.

Fitch Ratings cut Spain's rating by three notches on June 7 to BBB, one notch above Moody's, and put a negative outlook on the credit

The current bearish market metronome to Europe’s impotence and incompetence, Spain’s insolvency and other countries soon to follow, is neither surprising, or, heretofore, improbable. Yet, angst-filled investors remain invested.

Still, a summertime rally will climb this particular wall-of-worry, albeit in a saw tooth pattern, if only because so few people believe that it can or should. Only a fortnight ago, we stared into the abyss having received freshly humbling economic reports on real estate and non-farm payroll. This doom and gloom was sandwiched in-between periods of misplaced optimism about the outcome of Europe’s banking crisis and future global growth.

Treasury rates made their final approach and landed into the history books, June 1,  reaching 1.45% on the 10-year and 2.51% on the 30-year, exceeding all-time lows reached in the fourth quarter of 2008.

Gold and silver has finally awaken from their $1,500 range-bound sleep with explosive upside moves, also June 1, coinciding with revisions of two previous months’ worth of punk GDP growth and a terrible realization that a new Fed punchbowl is nearby while the Presidential hopeful, former Massachusetts governor Mitt Romney chances for capturing the White house in November are brighter than ever.

Only in these perverted times will bad news make the stock market happy. Although in testimony before congress, Fed Chairman Ben Bernanke downplayed any urgency in enacting Quantitative Easing III (QE III), and was instructed by a member of congress to take the punchbowl away; you can be sure that it will remain. Since, without QE III, many politicians and many portfolio managers alike fear for their careers; and the economy, too.

The remaining June milestones to watch include the Greece’s Parliamentary (Snap) election to elect parties that the (EMU) will approve of and vice versa; keeping the dream of higher asset prices and no bank loses alive. It’s being reported that $1 billion dollars daily is being withdrawn from Greek banks prior to Sunday, June 17^th election.

France’s Legislative Second Round election will to determine if the Socialists will take control of their government. Both countries’ elections occur on the same day.

On June 19th, the Federal Open Market Committee (FOMC) two-day meeting begins. Opinion is split as to whether or not an announcement regarding QE III will be made. The usual monthly data sets throughout the rest of June should experience an elevated sensitivity because the current atmosphere of presidential politics supercharges all things economic.

So, why will there be a summer stock market rally? Be patience, we’re getting there.

Over the past two years, knowledgeable talking heads informed us that Greek and Portugal fiscal catastrophes are manageable, however, if the banking crisis infects Spain, then, its economy is just too large to save and the ballgame for developed nations and emerging markets is over. Well, that time has come. Spain officially asked for a €100 billion bailout.

I’m sure you have heard that the rescue structure is the Ireland model. The double quote below, the first from Gluskin Sheff of David Rosenberg, and the second from the blog site Zerohedge commenting on Rosenberg’s comment succinctly summarizes the folly of rescue:

Rosenberg - When you realize that of the potential $100 billion to spend, 22% of that has to be provided by Italy and their lending to Spain is at 3% but Italy has to borrow at 6%. They have to lend to Spain $22bn at 3% - it is just madness. Everybody is getting worried again. The solution that they seem to have come up with seems to be worse than the problem in the first place.

Zerohedge - As we have pointed out vociferously over the past few days, even though the assistance is being earmarked for the banks, the Spanish government assumes the responsibility and so this once 'low national debt' sovereign is following in Ireland's footsteps as its debt/GDP takes a 10pt jump to 89% (based on the government's data) and much higher in reality (when guarantees and contingencies are accounted for).

If the too big to contain (TBTC) outstanding bad debt equation about the EMU was true two years ago, it’s no lees true, today.

Taken all together, this is a continuation of the crisis and fallout from 2008. Greece is in a depression. Europe will soon enter a depression. Eventually, the entire world will sink into an economic depression; another economic depression in a long line of collapses throughout history. But, somehow, we will survive. We always do. There will be new winners and new losers in the 21st century.

Back to this summers’ rally. The S&P 500 Index 52 week range is 1,074.77 - 1,422.38. The close on June 13^th was 1,314.88. Its 6-month high was 1419.04 and low was 1205.535, a ten handle move on the index before Labor Day is not unreasonable. The stock market is as much a psychological and emotional occurrence as any endeavor imaginable.

On a technical basis, the market is near the middle of its 180-day trading range. The market is nearer to an oversold condition than an overbought one. The market can ignore reality (bad news) for weeks, sometimes months, at a time. This summer’s rally may take out the year’s highs but will be the last opportunity for money managers to enhance long returns in 2012.

When the stars and stripes are waived this summer in London at the Games of the XXX Olympiad, beginning July, 27^th, lasting thru August 12^th, and gold, silver, and bronze medals for individual effort and achievement are collected by young men and women on behalf of our republic, we will lay down our various political blood sports, for a brief moment, and swell with national pride.

Is a summer rally guaranteed because the nations of the world are watching their fellow countrymen represent and excel in their sport of passion, as a payoff for years of dedication through their blood, sweat, and tears, while also inspiring the next generation to compete and succeed? No.

But, show me anything that makes sense in a de-levering world of microscopic interest rates, austerity programs that allegedly spurs economic growth, notional derivative contract values several times over of total global wealth today, an insolvent global banking system that extends and pretends the day of reckoning, or a financial world that believes somehow, someway, helicopter Ben will save the day.

We all need to believe in something.

A Brief Weekly Review and Outlook

Last week was a continuation of an exuberant market during earnings season and a flailing economy complete with bad housing data and seven additional FDIC bank closings. The bulls argue corporate balance sheets while bears focus on the economic data. So, which is safer; driving looking into the rear view mirror or the windshield?

There is near unanimous agreement in the market that deflation has defeated inflation. Unanimous consensus always makes me nervous. Looking around the US, deflation is prominent, with all things real estate. However, US real estate is losing its impact, month by month, on the global economy.

What cannot be timed is when global growth, and the inflation that comes with it, overrides the drag of American real estate.

The amazing Treasury bond market is like sleeping with a very large snake; hopefully, you wake up first. The bond market is pricing in a near depression, perhaps, while the stock market is celebrating business as usual. Or, the rest of the world is madly purchasing US debt, thereby, driving down yields, as there is no safe alternative to treasuries, at the moment. The wild card is government intervention – or the lack of it – from an economic perspective.

On the other hand, the municipal bond market continues to offer a much better yield, although, 41 out of 50 states are insolvent, and all five Gulf States are exposed to loss of revenue and clean up expenses from the BP oil spill.

Gold was up $1 buck last week. Gold is still outperforming stocks for the year.

The week ahead offers more corporate earnings reports and several important economic reports.

The Second Quarter T.K.O.

Friday morning the big number, the BLS Employment Situation, landed with a thud. The unemployment rate drifted down to 9.5%, private sector jobs increased by 83,000, the non-farm payroll employment loss was 125,000 and the birth/death rate adjustment figure was 144,000. Government jobs shed 90,000 and 652,000 job seekers left the market. Two-hundred twenty-five thousand temporary census workers were let go. The average workweek fell 0.1% to 34.1 hours and the average earnings also fell 0.1%.

Before we pick up our swords and shields in the third quarter to do battle for gains and profits with a rising Euro, a weakening dollar, massive state and local spending cuts, possibly minimum wage wages for California state employees, a chronically ill housing market, fugitive employment and falling consumer confidence, let’s review the barrel we found ourselves spinning in throughout the second quarter.

The second quarter was one of the most brutal trading quarters I have seen in 27 years, in investing. Here are a few second quarter headline stats from the WSJ MarketBeat Blog: for the DJIA - down 1082.61 points, or 9.97% to 9774.02, the worst quarterly performance since 1st Quarter 2009; S&P 500 Index - down 138.72 points, or 11.86% to 1030.71, the worst quarterly performance since 4th Quarter 2008; and NASDAQ - down 288.72 points, or 12.04% to 2109.24, the worst quarterly performance since 4th Quarter 2008.

These loses are comparable to those we experienced when we were in the thick of the meltdown. Unlike the express elevator to hell we were trapped in the last half of 2008 and the first quarter of 2009, this was a Six Flags rollercoaster ride that took our cash, our lunch, and our sanity. Investors should not hold their heads down in shame. Professionals did not trade this quarter well either. If this quarter had been a boxing match they would have stopped it. This was not an investors’ market and the last week in the quarter told the story.

Referees stop fights when fighters can no longer protect themselves in the ring. Boxers cannot block punches, jab, counterpunch, move on their feet, or throw a combination. Their eyes have a glassy stare. They are unaware of their circumstance.

The last week of the month and quarter is for profit taking and window dressing. Markets are purposely traded. This market, this week, responded not at all based on its whereabouts. Compare the first quarter to the second quarter.

In the first quarter, the market rallied from the start of the year until January 19th. It sold off until the first week in February. Then, it counterpunched and fought it way back to new yearly highs to end the quarter. The beginning of April saw the same fight in the market. A rotation in sectors kept the market moving forward. Traditional punches landed but did little damage to the rally.

Before the second quarter bell ranged, on March 29th, the 7-year Greek auction bombed. On April 19th, the yield spread between Greek and German bonds hit 469 basis points. Then, on April 20th, the BP oil spill occurred. These events rocked the market. On May 6th, the flash crash occurred and markets never really recovered. The market staggered for the rest of May. Investors should have exited the market here. Money managers were tightly clenched throughout June by FinReg negotiations in Washington. Markets and investors set themselves up to win the second quarter on points with improving economic data being released this week. The improvement in the economy did not materialize.

A market hurt and running out of gas whose only hope of surviving was avoiding any more blows and to catch a break. Luck turned out not to be a lady, but rather, a loud, nasty, violent drunk. The oil spill worsened with failed attempts to cap the well, accompanied by pictures of gulf coast estuaries being damaged, innocent wildlife being murdered, and the first hurricane to enter the Gulf of Mexico in June in 15 years. Also, actions of austerity around the world by governments – our allies - were counterproductive to the US economy recovery narrative. The Euro’s fall reversed. The unemployment picture did not improve.

The rally from the spring of 2009 was predicated on the assumption that economic recovery would support higher valuations. Without significant improvement going forward, the markets were overvalued. The only market that withstood the shots of international governmental policies, macroeconomic trends, and supply/demand curves was the mellow yellow – Gold. Au – 196.9665, which refused to be knocked out.

One of the most stunning championship fights in history was the 1965 rematch between, then, current Heavyweight Champion Mohammed Ali and former Heavyweight Champion Sonny Liston. For years, boxing fans argued about the “phantom punch” which knocked out Liston in the first round. Today, we’re still debating what caused the May 6th flash crash. The bottom line is that the explanation or truth for either event is moot; history has recorded Sonny Liston’s loss in a small auditorium in Lewiston, Maine and the 1,000 point drop within minutes did grave technical and psychological damage to the markets.

This third quarter market is no longer the same cyclical bull rally that began in the spring of 2009. The bell has rung, the secular bear is advancing across the ring and he is fighting mad.

The Lazarus Rally in 2010

This week marks the one-year anniversary of the market bottom for stocks following the 2008 collapse of the supply-side themed western financial system. A deceased stock market, the second week in March 2009; the major averages resurrected themselves, like Lazarus, on a holy-water flood of liquidity, more than any other cyclical bull market bounce in history.

The Dow Jones Industrial Average advanced March 9, 2009 to March 9, 2010, from a gut-wrenching 6,547.05 to 10,564.38. Likewise, the Standard & Poor’s 500 Index moved from 676.53 to 1140.45. The NASDAQ 100 climbed from 1043.87 to 1,901.38, over the same 365 days. These returns equal a decade’s worth of historical gains.

To those investors, who grew feathers, and ran to the sidelines, take heart; in investing, there are lies, damn lies, statistics, and market returns. At the beginning of 2009, the DJIA started at 8,801.72, the S&P 500 Index at 902.99, and NASDAQ at 1,212.24. Only the luckiest of people and your typical liar coolly strolled into the market that second week in March last year, aggressively bought stocks, and are still holding those positions.

Closer to the truth, an experienced bull investor last March probably started taking profits off the table in early summer. Or, they screwed up their courage in April or May and bailed in September, or year end. Anyone capturing these once in a lifetime returns should be running full page ads of their trade confirms announcing the opening of their new hedge fund. And why not, they could afford the advertising rates. Unfortunately, 2009’s trend will be swapped for market fluctuation in 2010.

So, where do we go from here? The answer for the stock market is quite different from the answer about the economy. Let’s first look at the stock market.

Stocks will not repeat the performance of the last 12 months. The last 12 months was fueled on liquidity and promised future growth. The future is here but the growth is not. Wall Street Cardinals assigned to Washington DC, Ben Bernanke and Timothy Geithner, will be less helpful to stocks over the next 12 months.

U.S. Quantitative Easing has an expiration date on its existence. Some central banks have already begun raising rates because their economies are moving forward, unlike ours. The retail customer has yet to return to the market, either through their company’s retirement account (which is hard to do when you no longer work for a company), or taxable investment accounts; when your 1%-2% bearing CDs and T-Bills, and falling home values no longer contributes to your positive cash flow.

Also, investors are going through Post Traumatic Stress Syndrome (PTSD). The dot.com bubble, the Enron era of scandals, the real estate depression, and 2008, has left baby boomers dazed and confused. They are reluctant to hop into the barrel one more time before retirement.

Despite paraphilic dispatches by CNBC anchors, reporters, and guests of an aroused recovery, to the contrary, the U.S. economy is impotent based on low tax receipts, high unemployment, and contracting housing prices and available credit. This is what occurs during a period of deleveraging.

Disposable income from the safest fixed income investments has all but disappeared. That retired couple that spent their 5%-6% interest from their fixed income portfolio to shop, to travel, and to dine has temporality lost over 70% of their purchasing power. Fewer transactions equals fewer sales taxes, in turn, equals less state and federal revenue. Becoming smaller becomes a vicious cycle.

In October and November of 2008, when extraordinary unilateral decisions were made to save the economy, two additional smaller adjustments would have made a huge difference; temporarily change the tax laws for five years, permitting individuals to write off all interest payments for credit cards, automobiles, etc. on their taxes, and to suspend for five years the provision in the Monetary Control Act of 1980 eliminating usury laws. Individuals would have extra cash inside their annual tax return and smaller monthly finance payments. How could banks complain since the Federal Funds target Rate was set December 16, 2008, at 0.00% -0.25%? Their return on borrowed capital is infinity.

Cities and states across the nation will become the biggest drag on the economy in 2010. Dramatic budget cuts to reduce a currently projected $180 billion shortfall are being debated for the 2010-2011 budgets, at this moment, thereby, violently truncating personnel and services.

Banks are still failing. The FEDS feel that they dare not raise interest rates without a very good reason. But, with banks not lending, or reducing credit lines to businesses, and credit cards rates were hiked before new banking credit cards laws were changed, I’m unsure who might be hurt by an increase. Top-down stimulus programs are inefficient and growing more unpopular. Both commercial and residential real estate are not improving And, the November elections will drive sagacity from public conversation.

Internationally, what we can see are sovereign debt problems and a suspect economy in Europe. Tensions growing in the Far East over; military bases, and now Toyota, with Japan; trade disputes and sanctions and political disagreements over Taiwan, Tibet, and Iran, with China. Plus, we have an amorphous exit strategy in Iraq and Afghanistan.

Adding up tapped out consumers, the continuation of deleveraging, near insolvent municipalities, and a gradual reduction of liquidity, what you have is a somber national economy with too few pockets of strength.

Traders relying on volatility and stock pickers that can hunt for appreciation will have several opportunities to feast, however, investors hoping for an expanding economy will soon wish for 2010 to be over with nothing but apples (AAPL) and chips (PEP) and cokes (KO) to snack on in the interim.

5 Reasons to Consider Buying SPY Puts Tuesday

The way the stock market laughed off bad news last spring and summer is over. The market action since January 19^th shows that the momentum from excessive liquidity is ebbing before the recovery can bloom. Now, the market is searching for corroboration to justify current levels. Markets have become impatient. Without these signs, the market is vulnerable to negative news. Any of the following five situations could cause the market to tumble:

1. Wednesday is a pointed economic release day. MBA Mortgage Applications, Industrial Production, Housing Starts, and the Treasury Budget can offer a surprise.

2. Although, most Americans knew February 14th as St. Valentine’s Day; in China, it was the Middle Kingdom’s Lunar New Year. President Obama is meeting with the Dalai Lama over the objection of Beijing. Sino-US tensions will only rise.

3. Greece is the word. The countdown starts to see what type of austerity program the government will embrace and will it be enough for Angela Merkel and Berlin.

4. On Thursday, Wal-Mart (WMT) reports earnings. If their earnings disappoint it could pull the market down.

5. Minneapolis Fed President Narayana Kocherlakota and St. Louis Fed President speak this week. Inflation hawk Thomas Hoenig, of the Kansas City Fed, speaks about “Avoiding a Government Debt Crisis”. One worrisome word from any speech could spook the market.

The odds of at least one surprise occurring is a certainty. Expiration Friday, notwithstanding, the repercussions could be immediate. Until the correction is over, protecting your portfolio may be in order.

What Happens to the Market in the Next Leg Down?

This week, the stock market correction began and with it a resumption of the secular bear market. We focus on price and volume, earnings and growth, when we discuss stock valuations and their trend cycles; however, we frequently overlook or conflate the changing ingredients of the economy with market action, which can cause these movements to occur for different reasons. Recognizing the asset's changing environment, through macroeconomics, provides additional context for making correct investment decisions.

The swift collapse of stock prices this week was not supposed to happen – if you listened to the experts. This was earnings season, with many companies beating the consensus estimates, healthcare reform was a win-win for the insurance industry. The Obama / Pelosi / Reid troika of socialist madness was stopped in its tracks following the humiliating loss of the late Ted Kennedy's Senatorial seat in the bluest of blue states – Massachusetts, (I'm convinced JFK and his poltergeist siblings paid BHO a White House visit in his dreams, Wednesday night), to Scott Brown, and green shoots are growing slowly, but surely, everywhere. So, what went wrong?

First, some background information. The two previous secular bear markets, using the S&P 500 Index, occurred from 1929-1949 and 1966-1982, lasting 21 and 17 years, and returning an average 2.34% and 3.64%, respectively. Many technicians believe the current secular bear market began in 2000. If true, an average length of 19 years, plus or minus 4 years, suggests this explains the "lost decade" of 2000 to 2010, and 2015, could be the earliest before the next secular bull market begins, establishing new market highs.

Prior to the secular 1929-1949 bear market, America spent two decades transforming itself into a manufacturing economy and away from an agrarian one. Our entry into World War I gave a terrific boost in accelerating modernization and production, pushing outward this young nation's supply / demand curve. After the war, and for the bulk of the 1920's, vast amounts of European and Latin American bonds were sold to ever growing prosperous Americans. Combine these two factors with a red hot real estate and a stock market requiring 10% margin, when the party ended, it really ended. Bonds defaulted, real estate collapsed, consumption could not absorbed production, and stocks became virtually worthless overnight.

Before the secular bear market, Charles Lindbergh crossed the Atlantic Ocean in a fabric covered, single-seat, single-engine "Ryan NYP" high wing monoplane and silent movies were the latest in cinema entertainment. As the 1950 secular bull market found its legs, the US Air Force was flying combat missions in Lockheed P-80 Shooting Star subsonic jet fighters. Gene Kelly and Frank Sinatra were singing and dancing, in Technicolor, in MGM's musical "On the Town". A generation of people and technology had past between the two bulls.

The 1950s ushered in the suburbs, television, Disneyland (DIS), union jobs, a growing middle class, rock 'n roll and Elvis, interstate highways, the photo copy, air conditioning, transcontinental passenger flights, a litany of consumer products, and a loss of fear of investing in stocks. Urban centers grew; wages rose, the space race developed, the national debt was reduced, and America led the world in education and technology.

The 1960s saw our wealth and prosperity change, challenging our culture and priorities at home and abroad. Expensive domestic programs and an expensive foreign war led to spending beyond our income. The baby boomer explosion required an expansion of the nation's infrastructure, while the world recovered from World War II by building new manufacturing infrastructures.

Resources were more in demand, globally levitating prices. Inexperienced laborers and rising wages reduced productivity. The Dow Jones Industrial Average reached 1,000 in 1966 and traded between 500 and 1,000 until 1982. Abandoning the gold standard, two oil shocks, a falling dollar, and 15% home mortgages created stagflation and inflation and provided the ingredients for the next secular bear market. Forming beneath the surface at this time, however, were advances in aeronautical and metallurgical engineering, miniaturization and solid-state circuitry, and computer science; the foundation of the information-based and digital-based economy we enjoy today, and in large measure, the basis for the previous secular bull market.

Paul Volcker, as the Federal Reserve Board Chairman, at the start of the 1980s, hiked short-term interest rates above 20%, to break the back of inflation. This bitter medicine drove thousands of credit-dependent businesses out of existence and pushed unemployment to 11%. This allowed a 26 year secular bull market in treasury obligations to begin, followed by the 1982 bull market. Ronald Reagan replaced Keynesian economics for Supply-Side economics.

Deregulation became a top industrial priority, unions were broken, marginal tax rates were lowered, and deficit spending was pursued by government. Usury laws were abolished, Defense spending increased, the personal computer was born, and productivity flourished. Wall Street took off, just in time to accommodate the conversion, by businesses; from defined benefit retirement plans to define contribution plans for their workers, and the mutual fund industry smartly induced metamorphosis to grab a share of the young Investment Retirement Account and 401k market.

In 1996, concerns were raised. Irrational exuberance was sounded; however, the dot.com boom overcame caution and prudence in the stock market by investors averaging 15%, annually. Y2K drove sales and purchases, alike, and the cold war was a fading memory. On Friday, March 10, 2000, NASDAQ closed at 5,049. Friday, January 22, 2010, NASDAQ closed at 2,205.

What caused the secular bear market, this time? The short answer is we are valuing 20th century assets in the 21st century. We are servicing and deleveraging 20th century debt levels with 21st century cash flow. Again, our production exceeded our consumption. Stagnant income in a global economy and declining national wealth restricts our ability to manage outstanding liabilities and the interest expense it generates. This bear market shall be with us until these imbalances are cured, that requires time.

But, the better question is; what happens next? Since last March, investors have enjoyed a vacation from investment terror, however, the disease which pushed our financial system to the brink is still inside our economy, and will continue mutating during the next leg down, so that the last cure is rendered ineffective even as we profit from one more cyclical bull market in the future.

How does one manage risk, preserve wealth, and seek alpha returns for the duration of this secular bear? I am advocating gold and precious metals today, commodities and natural resources tomorrow, and later; energy, utilities, and info-communication companies, for long-term investors. I believe we will witness a new phenomenon this decade that will invent the existence of deflation and inflation, side-by-side. Prior to the 1970's stagnation and inflation could not exist simultaneously, or so we thought. Paper assets, and several currencies will wreak havoc on portfolio returns, losing their value and becoming out-of-favor, for all, save the nimblest of traders.

Only time will rectify the excesses accumulated from the last bull market, thus prolonging pockets of deflation, while seeds for inflation are sowed into every corner of our economy, waiting to ignite. But, these seeds are different from the last bout of inflation we experienced; therefore, correctly identifying them becomes the intermediate and long-term investor's test.

That will be covered in the future.

The Next Decade: Best of Times, Worst of Times

The global economy is no longer in freefall. The rubbernecking by all markets in 2008 has morphed, short-term, into an abrupt reduction of consumer and municipal consumption. Furthermore, falling tax revenue, plus the injection of deficit federal spending equals the antithesis of growth. These simultaneous realities are the legacy from 2008. Meanwhile, cheap stocks and frantic money managers, with plenty of cash, are driving stock prices irrationally higher, despite reported weaker quarterly revenue and earning numbers for many companies.

The back-of-the-envelope calculation promoted by a growing chorus of pundits is cheering the equivalent of a sugar high. Everyone likes sweets but the consequences that follow vary. In today’s market, this sugar rush is erasing from memory last year’s brutal stock market and the lingering problems that caused it.

Taking the macroeconomic view of domestic and global economies, monetary policies, demographics, supply and demand, and the new ingredient – 21^st century nano-digital information, a new and peculiar economic state of being – InDation - will occur in the upcoming decade. This economic mutation is possible and probable because, heretofore, it was near impossible to calibrate daily, or hourly, reasonably valuations, arrive at informed decisions, and implement actions, for either side of any transaction, on a sustainable basis. Today, the world contains seven billion individual economies, tethered together, communicating, and constantly reformulating, digitally.

There are primarily two schools of economic thought in predicting the future from where we are; either inflation or deflation will accelerate. The basis for these conclusions is 19^th and 20^th century econometric modeling. I submit that these established models are imprecise in today’s world. Just as the portmanteau stagflation, coined by British Politician Ian Macleod, in a 1965 speech to Parliament, appropriately described the 1970’s phenomenon of no growth and inflation in America, in the coming decade inflation and deflation will occur side by side, separated by micro supply and demand curves, thus, requiring a new expression, too. I am confident about this prediction.

What have we learned from 2008? Just six months ago, central bankers and financial titans around the world, prayed each night like ancient agrarian farmers to their personal earth god for one more chance, if the western financial system did not disappear into oblivion. Today, the Standard and Poor's 500 Index closed above 1,000 and everything is ok. This cognitive dissonance behavior is tantamount to a morbidly obese man having a massive coronary last September, and this afternoon, lunching on a deli’s accordion pastrami sandwich, a slice of cheesecake standing by for desert, and a pack of cowboy killers in his shirt pocket, for that indispensible after meal smoke. We buried our financial problems but they are not yet dead and they will attack us again soon from their grave. Sell stocks into this summer rally.

Individuals, corporations, and nations of the wild debt and derivatives binge earlier this decade, that did not restructure debt reflecting current cash flows, expenses, and market share, will suffer a qualitative lifestyle decline. Conversely, success faces demand-pull inflation for energy, food, water, raw materials, and other natural resources, as three billion people, mostly non-westerners, scramble to elevate theirs, and emulate our standard of living, through export manufacturing, cheap labor, and individual education.

The next decade will be the best of times and the worst of times. It will be a world of inflation and deflation and the Standard and Poor's 500 Index trapped in a trading range between 600 and 1,500.