To OTC Journal Members: 

I've got something really exciting for you coming up tomorrow or over the weekend. It's a new idea in a low priced stock- I'll even go so far as to say this one is a "penny stock". Down from nearly $2 over the past year, this one has reached the subterranean level of $.13 because investors think the company is going out of business due to lack of capital.

I expect to have the proof they aren't going out of business anytime soon, and I believe this stock just might rebound to a double or triple from it's absurdly oversold level. 

Stand by for the next edition. This one could make a breathtaking short term move once the facts get out, and I'll be all over it for you.
 

The Bonds/Gold Disconnect

Yesterday's news out of the FED was huge. In the past, we looked for interest rate changes. Now we look for other stuff in the FED's bimonthly get togethers. How could the FED lower interest rates?- we're already at zero on the FED funds rate.

Yesterday's FED announcement really took the markets by surprise. In fact, I'll go so far as to suggest the FED's latest move might just represent a turning point in market psychology. The FED's announcement yesterday could be the point from which Wall Street begins to believe the government's massive stimulus package actually has some chance of working.

Yesterday, the FED announced it was going to increase the size of its balance sheet by $1.25 trillion this year.  In plain English, that means the FED is going to get $1.25 trillion to spend over the course of this year. Clearly, we either have to print the money or borrow the money, because it surely isn't coming out of tax revenues.

The FED also announced it would use that money to buy back long term Treasuries, buy mortgages from holders of those portfolios, and provide collateral facilities for small business loans.

After the announcement, here's what happened- Gold went crazy, US Treasuries went crazy, and the Dollar got clobbered. Of the three securities I just mentioned, there's two I really care about with associated buy recommendations.

Let's start with US Treasuries. Here's a chart of TBT, the inverse long bond security I recommended at $39 in early January as my "Easy Money" trade for Q1 of '09.

When the FED made its announcement it would buy back $300 billion in long term treasuries yesterday, the treasuries went crazy to the upside. In fact, the yield on the long bond dropped a full 1/2 point on the news, which is huge in the world of treasuries. When the price of a bond goes up, the yield goes down.

You can see the huge price move and volume spike down in yesterday's chart. I still believe this security has a date over $50 into the $52 to $55 range. It's going to happen when interest rates start going up, but now it's simply going to take longer.

Now, let's look at my favorite way to own gold. DGP is the ETF that mirrors the moves in Gold 2 for 1. I picked it a couple of weeks ago at $21.50, and it's just north of that level now. I believe this is one security everyone needs in their portfolio for the remainder of 2009 and maybe beyond.

Gold went crazy yesterday as it made the official transition to a new psychology. Previously, the price of gold has been driven simply by fear of being in equities. It's the same in the long bond- fear drove investors to buy up the long bond as a safe haven against all other classes of securities.

Yesterday, Gold made the official transition to being driven by fear of inflation coming down the pike. After all, if the US Treasury is going to print $1.25 trillion this year, it's going to have to inflate something. You just can't print that kind of money without some sort of undesirable consequence. It's the inflation fear that drove the dollar down as well.

At this point in time, a little inflation might be good for the economy. However, you simply cannot have long term interest rates going down while inflation increases. It's a market disconnect that will have to correct itself somewhere down the road. 

I suspect the upside move in long term treasuries will reverse itself, and gold will be the winner of the two later this year. It's just going to take a few more months.

TBT is a buying opportunity on this news. However, I doubt it will roll into April north of $50. It's going to take a few more months. Gold- through DGP, is back in play, and could have some real legs in here. 

The Long Bond won't keep going up if Gold continues to do well. It's just too much of a disconnect. I believe the winner in this horse race will be Gold, and holders of TBT. And----- They're off.

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