To OTC Journal Members: 
 

By the end of this week I'll have a new BLOG up on every security I'm currently following. If you go to the home page, you will note there has been a change in the layout of the real estate. The Video player has been replaced with the BLOG section to make it easier for you to find the latest entries. There haven't been many BLOG entries of late, as the market has been trapped in a trading range for about two months.

Yesterday I posted new BLOG entries on GLD and TBT, both of which I believe are extremely attractive at the current time as equities everywhere are being absolutely trashed.

The BLOG is your opportunity to ask questions and offer comments. I will make an effort to answer every legitimate question. If I don't know the answer, I will contact the management and get the answer. Alternatively, if you have questions you don't want publicly displayed, you can always email me directly at editor@otcjournal.com. If you submit a comment or question, it will not appear on the site until I have responded.

Here's a recap of my thoughts on where to make some money after a pretty ugly day on Wall Street.
 

The Market Breaks Down as Gold Breaks Out

Just another post Holiday weekend Tuesday- nothing to get too excited about. I wish- not the case. I woke up yesterday to a bloodbath in the equities markets on the day our newly anointed President signed the $800 Billion "stimulus" package. Since the US Government doesn't have the money, and tax revenues are way down, we have to borrow the $800 billion. Fortunately, the Chinese have the money to loan since we sent it to them over the last 20 years. and they are willing to lend it to us.

My XLF trade was stopped out today at it opened at $8.29- my SSL was $8.50. The trade is over. There were 2 one point moves, but it went the other way on us. The Financials are intriguing because they are so cheap- one wonders if Wall Street hasn't priced in a worst, worst, worst case scenario already. Yesterday represented a whole new leg down in the financial sector, which I admit was a bit of a surprise. The bad news that precipitated the sell off came out of Eastern Europe- another banking crisis leading investors to believe there could be more carnage for the bank stocks. Probably an over reaction, but nevertheless the Bronx cheer for financials.

While this is clearly a big negative for the small stocks I follow, it does open the door to a couple of my more current ideas that are doing well, and they are worth reviewing. I believe both of these ideas are investments with considerable upside ahead, and even more timely after yesterday's drubbing.

Here's a recap
 

Gold (NYSE: GLD): The Bright Shining Star

I called GLD a strong buy a February 3rd at $88.47. Today's climate of extreme fear sent GLD out of its trading range in a nearly perfect technical breakout.

Here's the chart I put up in yesterday's BLOG. It's a weekly chart so you can see the big picture. The top green line, the "resistance" line, was breached to the upside today moments after the market opened.

Gold has been trending higher since mid October, but yesterday was the day it broke out of it's "ascending triangle" formation as money poured out of bonds and stocks into the shiny stuff.

I believe this particular security could have legs far beyond today's simple fear driven rally. Consider the following. Where is the money going to come from to bail us out of our current predicament? In a sense, we are going to simply print it. It isn't going to come from tax revenues.

When the market really catches on to how much we are going to have to print, the excess supply will bring back Mr. Bernake's next nightmare- the "I" word- INFLATION.

Yes, we could inflate our way out of this recession/budding depression. And, if we do, watch the Shiny Stuff make an 18 month move to who knows where. The old highs of $2,500 might not be a pipe dream ($250 on GLD). There is a whole sub culture of doomsdayers who have been calling for the end of the financial world for the last twenty years, and there's a possibility they might finally be right. The aging generation of gold bugs who long for the ra ra days of the '80's when gold was the only thing to own might have one more hey day.

As the storm clouds gather, you can't afford not to have GLD in your portfolio. I'm not ready to call a big move in junior mining stocks yet- they are huge cash gobblers, and there's no cash around for them to gobble up quite yet. Stand by on those ideas if capital starts to flow to juniors.
 

The Inverse Long Bond (NYSE: TBT): Still, the Easy Money Trade

The Bond Bubble is still out there, and it will be the next bubble to burst. This time we are ahead of the curve with TBT- the inverse of the Long Bond. It goes up when the Long Bond goes down.

Let's revisit Bonds 101. Class is in. When a Bond is issued, it is accompanied by a coupon, or interest rate it pays. A bond in the amount of 10% for $1,000 pays $100 annually. When the price of that bond goes up, the $100 coupon remains the same, and the interest rate it pays goes down. If one were to pay $1100 for that bond, the owner would still receive the annual coupon of $100- or 9%.

The irrational fear that rules the investment world these days has resulted in money pouring out of any moderately risky securities- stocks, corporate bonds, etc- it's been flowing irrationally into the world's safest security- US Treasuries, driving up prices.

When there's more buying than selling, the price goes up. When it comes to bonds, the interest rate goes down. When prices are quoted on bonds, the yield is always the benchmark. The lower the yield, the higher the price.

Here's your insane bubble akin to oil at $140- The longest term US Treasuries- those over 20 year maturities, have been bought up to the point where their interest rate got down to 1952 rates- 2.5%. In the world of the US Treasury long bond, this is a stratospheric number. Absolutely insane. This bubble is going to burst. Why? Here's why-

Here's where the numbers $1/2 Billion and $2 Trillion come into play. $1/2 Billion is the amount of Treasuries the US Government will auction in this quarter alone. That's up from $125 billion this quarter last year. A nearly 4 fold increase. $2 Trillion is the amount of US Treasuries we will issue next year. By far, the most in history.

Excess supply will force the price of bonds down, bursting the bubble. Undoubtedly, the US Treasury will still be considered the safest security in the world, but lenders will simply want higher interest. Put even more simply, when there's excess supply, prices have to go down. Today's rates of 2.66% on the 10 year and 3.45% on the Long Bond will simply not hold up. Lenders will want more, which means prices go down.

I believe there is at least another 10 point move in TBT. This pullback from the $50 level is heaven sent if you didn't jump into this when I first recommended it at $39. If you want to take more risk for less money, consider the June 44 calls at $4.70. A big premium, but a lot less capital at risk.

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