Do You Believe In Magic?

Today market was quite magical. I think that it highlights the battle (well not much of a battle today ;) )that is currently going on regarding underlying economic fundamentals and the uncertainty about the probable growth and market returns over the coming 12 months.

Key issues:

1) Inflation - some people say this is an issue and some don't. As long as Fed keeps talking about it as an excuse to raise rates I think that it is an issue. When they stop and say that its under control and the rate hikes are over I think the market goes through the roof. Obviously we have no edge here.

2) Interest rates - bonds sold off big time today driving long-term yields higher, but at the same time the spread between longer-term and shorter-term interest rates continued narrow. This should continue to put the squeeze on the financials (even though share prices aren't reflecting this)

Personally, I don't believe in Magic.....but maybe that is why I have been losing so much money every day? I mean I must believe in magic by trying to call a "top" in the financials. That is financial suicide. I need to think about this stuff some more as my gut is leading down the wrong-trail again begging me to flip the gold position as it goes up and double down on the financials short but with a slightly longer time horizon and less leverage out to January 2006 instead of the current one which is November 2005 expiration.

Wishful thinking? Probably. It will be interesting to ponder the markets direction though in the meantime. I guess market can go to higher end of trading range anywhere from 10,500 or even to 10,900 as part of the "winter rally." The beginning of a new bull market in stocks is difficult for me to imagine at this point (i.e. something caring the averages into a 12-14K range over next 1 year), but it can't be ruled out I guess as that is a 20% move - I mean back in the late 1990s if market did not return 15%+ year something was wrong.

I had a great e-mail from a reader today regarding sticking to what you know. If you have any edge re: a trusted advisor, you work for the company, you have built your own system for trading a certain sector - why bullshit yourself and try to understand everything. The stock market is enormously complex. Why can anyone beat out 20 MIT and Harvard PHDS running the hottest new hedge fund or mutual fund? What is your edge?

I don't know but it sure is fun when you get it right and painful when you don't. Here is the portfolio snapshot. My new favorite hip hop group is "House of Pain":

Regards,

BG