In probability theory,
events E1, E2, ..., En are said to be mutually exclusive if the occurrence of any one of them automatically implies the non-occurrence of the remaining n − 1 events. Therefore, two mutually exclusive events cannot both occur. Mutually exclusive events have the property: Pr(A ∩ B) = 0.
For example, one cannot draw a card that is both red and a club because clubs are always black. If one draws just one card from the deck, either a red card or a club can be drawn. When A and B are mutually exclusive, P(A or B) = P(A) + P(B).
One might ask, "What is the probability of drawing a red card or a club?" This problem would be solved by adding together the probability of drawing a red card and the probability of drawing a club. In a standard 52-card deck, there are twenty-six red cards and thirteen clubs: 26/52 + 13/52 = 39/52 or 3/4.
High Oil prices and an expanding U.S. economy are, IMHO, mutually exclusive events. High interest rates, and high equity prices are mutually exclusive events.
Something will give here. These asset classes cannot ALL have positive correlation for any length of time. I just pray that it is not the US$ that gives.
BTW, the Deflationists appear to be losing the argument at the moment. Actually, the Deflationists are watching their heads role down the street with their blood dripping from the sword of the various Central Banks.
Not that I am ready to throw in the towel on those guys... As I said a couple weeks back, I covered my shorts, because this is a beauty contest... and it doesn't matter which girl I think is the prettiest... what matters is what the judges think, and so far they seem to think the inflation trade is working.
This is either a VERY "V" shaped recovery, or one of the greatest head fakes of all time.
The time to have been bullish was at Dow 6,500. 9200? In the immortal words of former BEar Stearns CEO (my former boss back when Bear was a respected firm... say what you like about Bear, but this guy was the most humble genius I ever met) Alan C. "Ace" Greenberg: "If you didn't get invited to the wedding, don't go to the funeral".
There is a blow off in here somewhere... I just hope it ain't at Dow 12,000... or I will have a tough time cleaning up from all of the egg on my face.
The US$ is oversold versus the 6 other big currencies in the Dollar Index. This MIGHT mean that precious metals are over bought I own a great deal of metal, but I have continued to sell calls against it. If it gets called away, I will let it happen, and sell puts to re-enter. I have no intention of selling the actual bullion I own. Of course, if this is the Big Bang for the US$, well... let us hope not...
I have been a Gold Bull since just under $500. I still think over the next 5 years Gold can hit $2000. But if the US$ rallies, and it is long overdue, the precious metals could come under pressure. So, if you decide to hold now, don't freak out if they come in. Of course, with the kind of monetization the U.S. is going to have to engage in, this might very well be the beginning of the end.
The Obama administration is floating balloons about raising taxes on the middle class. I believe this is to assuage the Chinese and other creditor nations that the U.S. is going to get its fiscal house in order. The U.S., WILL ABSOLUTELY, POSSITIVELY cut expenditures and raise taxes at some point. I doubt whether this Administration will "Lead" the way, doing th right thing and cut expenditures like mad FIRST, and then sell a tax increase. They will be too busy looking 2012 in the face... but, you never know.
If Obama wants to go down in history as a great president, and was willing to forgo a second term (which is actually in his best interests. There is nothing better than being a former POTUS), and if I were working as his speech writer, here is what his opening address on the issue to the American people would be:
My fellow citizens:
America is faced with an unprecedented fiscal problem, and I am going to tell
people what they don't wish to hear, and require that which people do not wish
to do. Accordingly, I will not seek second term to my Presidency. I will instead use all of the power of my office to bring the nation's fiscal issues into balance. It will be VERY painful, but we can, and will, overcome these obsticles in our path.
Withing minutes of giving this speech I would communicate the seriousness of the issue by proposing to eliminate the Departments of Energy, Commerce, Homeland Security, Education, Labor, and Housing and Urban Development. I would issue a huge recall of military troops from around the world, and I would use these troops to engage the American poor in how to become more self sufficient in providing for themselves.
And then I would really start to cut spending.
This would throw the nation into a massive Recession, which is exactly what is needed. The U.S. must make the transition to less consumption and increased savings - and tha faster we do this the better - and only a popular president with street credibility could make it happen.
But I got a better shot at a date with the tooth fairy.