Much needed crack, I mean cash

I am back from a very long break (working as a summer associate at Linklaters, structuring CDO's that people won't see again for a long time, moving out of dirty Brooklyn and moving into pretentious Soho, traveling to a paradise island in Thailand etc.) By the way, what better day to recommence trading than today's Bernanke festival? The market has been addicted to easy credit for the past 5 years, and today Bernanke must give the market its much needed fix.

Today is the big day everyone has been waiting for: B-52 Bernanke (a la Puplava) is about to unleash piles of cash over the markets. When the subprime/credit crisis really began to reveal itself in August, most people had no doubt that the Fed would slash the fed funds rate by at least 50 basis points. Since then, the Fed has undergone a massive reinflation campaign by lowering its discount rate and exchanging almost any piece of crap for cash, thus providing much needed liquidity into the financial system. By doing so, the Fed has technically already lowered the fed funds rate by 25 basis points and injected inflation into the markets. In recent weeks, we saw gold make new highs, silver make a strong comeback, and crude reach a record high. This trend became more pronounced when precious metals began moving independent of stock performance in the past few weeks.

With inflation indicators at record highs, many people recently became wary of whether the “academic and inflation fighting?” Bernanke would indeed cut 50 basis points. But we’re talking about B-52 Bernanke here, and he is certainly not an inflation fighter. The central bank is constantly on a PR campaign to establish itself as an inflation fighter, but in reality, the central bank is the sole creator of inflation and the market depends on it more than ever. Recent fear of an "excessive" rate cut will actually provide the Fed today with room to make a 50 BP cut and beat market expectations.

So what should one buy and sell? Obviously, we are very bullish on gold and silver. Unfortunately, silver has been lagging behind gold (silver is still $2 shy of its 2006 high), and some are doubting the performance of silver, citing reasons like decreasing industrial demand. But watch out for silver, as I will begin following silver very closely.

Feels great to be writing again!!!