January 2006

Eager to alert readers to the imminent danger of deflation, I tried unsuccessfully to draw Gary North, a well-known inflationist, into an edifying debate. Why North? Well, for one, I haven't come across an inflationist argument yet that couldn't be flattened by a fart. It stood to reason that North, a heavyweight when it comes to economics, would be able to throw a few argumentative punches that might cause us all to reflect more deeply on the inflation-vs-deflation conundrum. Unfortunately, North has turned out to be just another flyweight, unwilling even to step into the ring. The following note from him was the penultimate in an exchange of e-mails between us: ' I have no thought of persuading you,' he wrote. 'My target is anyone who cannot make up his mind between inflation and deflation. I honestly do not care what you argue. [That's for sure. RA.] I do care that the people who read me may read you. You are a threat to them. I will do what I can to immunize them.' I replied: 'Great! Immunize away.' But I have my doubts that North is up to the task. For one, in the half-dozen or so e-mails that passed between us, he never once attempted to rebut any specific point that I'd made. The same is true of a series of exchanges he had with Jas Jain, a hard-core deflationist like me. And neither did North attempt to rebut me in an essay he wrote after our correspondence ended. A piece by him published a week ago at lewrockwell.com jabbed at a deflationist straw-man, but virtually every point North scored in this fixed fight fell a step or two behind arguments that I've already kayo'd. A Task for Readers At this point, I am no longer inclined to sift through Gary North's writings to

I spent Tuesday nursing the flu, tuned to Samuel Alito's confirmation hearing on C-Span. The tone of the proceedings was surprisingly civil, perhaps because going on the attack against the mild-mannered judge would have been like trying to savage Mr. Peepers. Things are bound to turn ugly, or at least uglier, when partisan debate begins today, but it's very difficult to imagine the Democrats will be able to derail Alito's confirmation. Yesterday he appeared to have all the answers, notwithstanding the fact that many of the questions were curve balls designed to challenge his recollection of events and decisions that played out decades ago. It was like watching a Zen master play Pac-Man all day without a foul. Does he ever miss? A day away from my charts seems not to have cost me much. The Dow was off a whopping 32 cents after being down nearly 60 points earlier in the day. It was a pretty typical session, with stocks turning buoyant after sellers ran out of steam in the first hour or so. If the pattern of the last umpteen months holds, the obligatory short-squeeze will take hold today or tomorrow, persisting into Friday. It seems clear that other People's Money is driving the market these days, as fearless and unstoppable at the start of the New Year as a rutting moose.

Can you guess what the following films have in common: Woman of the Year (1942), Race Street (1948), The Time of Your Life (1948), The Big Steal (1950), Gambling House (1951), Blackbeard the Pirate (1952), and Dangerous Mission (1954). Go to the head of the class if you got this one right. I was half-watching these films on Turner Classics yesterday ' soundlessly as always during trading hours ' but it wasn't until about midway through the third one, 'The Time of Your Life,' that it dawned on me I'd been sucked into an all-day-long William Bendix retrospective. No one can say the gang at Turner Classics doesn't have a sense of humor, showcasing as they have -- for an entire day -- the dubious gifts of one of the most wooden actors ever to appear on the big screen. Bendix was an actor's actor, but not for the same reasons we might say that about Robert Duvall or Gene Hackman. His enduring gift to the craft was to have made nearly all of the actors who worked around him look like Oscar material in comparison. In the film that's on at this moment, Dangerous Mission, even Victor Mature, an actor out of his element when not wearing a toga or a loincloth, seems very much at ease working opposite some real talent, including Vincent Price and Piper Laurie. But every time Bendix is on-camera, the film, a C-grade suspenser originally released in 3-D, turns into unintentional comedy. Not only is Bendix incapable of delivering a line without making it sound stupid; with every step he takes in front of the camera, he reminds one of a baseball manager plodding stolidly to the mound. Hard to believe that Bendix, playing Babe Ruth in the 1948 biopic, was my very favorite

We know, as clearly as it is possible to know such things, that the stock market is now in the hands of the lunatics. As much was evident Friday in the price action of Google, which at one time was up nearly 20 points on the day. I hesitate to tell you that this was the blowoff we've all been expecting, since one can never predict what manner of stupidity, insanity and piggish greed will hold sway when the markets open for 'business' on Monday. The foregoing might sound like sour grapes, but in fact we made money shorting Google on Friday. Not much, to be sure, but when the stock blew past a 460.94 rally target I'd proffered, it looked like a good time to turn tail and run. A felicitously timed pullback allowed us to do so without breaking a sweat, leaving us to fight another day even if other GOOG bears didn't fare so well. Once above a hidden pivot I'd flagged 460.94, Google was all but ordained to reach the next, 470.49, a target that I disseminated intraday. The stock subsequently peaked a penny above that number, at 470.50. The Mother of All Tops? Who knows. Anyway, our goal isn't to pick THE top, but to identify swing highs with sufficient precision to allow us to short them with relatively little risk. This obviously worked on Friday, since the January 460 puts that we bought for 9.00 when Google was rising held up nicely even when it shot past our target. All it took was a mild pause in the rally to bring our puts back to what we'd paid for them. Our entry price, in retrospect, was frugal enough to provide a further cushion against error; for, even though the stock exceeded the target by nearly

We were in there bidding yesterday for more QQQ puts, but even with the underlying index acting more buoyant than the broad averages, the options stayed just out of reach. This is encouraging, since, as in other areas of life, we shouldn't be too eager to possess things that come too easily. We'll be bidding once again for put options this morning, although not necessarily as generously. If shares are strong, we'll back off our bids accordingly; and if they are weak, we might bid with the crowd. Of course, it is only in extremely rare instances that we would pay up for puts or calls, buying them on the offer. This is a no-no when attempting to load up on out-of-the-moneys that sell for nickels and dimes to begin with, and for which paying that extra tick would add a third to their cost. But we should always be wildly eager to pay 0.15 for a put option when it is possible to short another of a lower strike for the same price. For instance, if the January 40 QQQ puts are 0.10 bid ' 0.15 asked, and the January 39 puts are 0.05 bid ' 0.10 asked, then we should try to buy the former on the bid (i.e., for 0.10), and then to short a like number of the latter on the offer (i.e., for 0.10). If successful, we'll have legged on a $1 vertical put spread with profit potential of $100 per spread and no possible loss. That might sound like small potatoes, but how would you like to have that spread on 200 times? That would mean that, for the mere cost of commissions, you'd have a shot at making $20,000 in the next three weeks without risking a dime. One implication of the foregoing is

The seashore town of Margate, New Jersey, where I grew up in the 1950s, didn't produce many big-time celebrities. There were no professional baseball players, no Wimbledon aces, no famous authors and no movie stars. Okay, there was Seth Justman, who played keyboards for J. Geils Band. And Chris Ford, a standout hoopster at Holy Spirit High, carved out a distinguished career in the NBA, playing for the Detroit Pistons and then serving as head coach for the Boston Celtics. But that was about it, unless you count the Tisch brothers and Bob Tisch's movie-producer son, Steve. Considering how very dull Margate was, you can imagine my excitement when I first learned that my very-next-door neighbor, Jack Abramoff, had reached the pinnacle of criminal success on Capitol Hill. It seems that, as an uber-lobbyist and A-list influence peddler, Abramoff made more money than Al Capone merely by hooking up clients with Congressmen who could reliably deliver the goods. Now, I'd love to be able to tell you a riveting anecdote about little Jack that illustrates how, even at the tender age of seven, we all knew he was headed for the big time ' and the Big House. But the fact is, I don't recall the kid at all. Was he the little drooler who would drop his drawers and muddy himself in our back yard? Or was he the other kid, the one who used to shoot rubber-tipped arrows onto the roof of our house. I don't recall, and neither, probably, does anyone else who grew up in the neighborhood. Apparently, Jack and his family moved to Beverly Hills before any of them could make their mark on the downbeach communities. But I do recall that Mrs. Abramoff was one tough cookie, at least in the eyes of the

Who needs a Plunge Protection Team when the Federal Reserve stands ready to ignite Wall Street's New Year with a rip-roaring bonfire? Never mind that the fuel for yesterday's short-squeeze was a low-octane pile of manure, containing as it did little more than coy hints from the Fed's December minutes that the central bank might stop tightening sooner rather than later. News doesn't get much softer than that, but it was obviously sufficient to send bears into a buying panic. As nearly always, it took short-covering by 'don't pass' bettors to drive stock indexes above key resistance levels. Bulls had shown themselves incapable of this task when they spent the entire month of December producing little more than irritable bowl syndrome on Wall Street. Yesterday, with crude oil prices in an explosive rally, it would have been asking too much of them to pitch in. So leave it to the pessimists to punch through daunting supply ' and to the Fed to know precisely when to apply the necessary squeeze. (Click on chart to enlarge) Of course, the central bank's New Year's gambit did not require investors to become more bullish -- only for their pea-sized brains to become sensitized to the possibility that, in mere moments, a mob of CNBC-watching bozos on a hair trigger might get there first. Such was the dynamic of yesterday's rally, which could not have impressed sober observers as much as it did the bull-marketing channel's talking heads. We note that the surge did not surpass even a single one of December's peaks (see chart above). Of course, that could change in an hour this morning. But if so, it will have to be be without the element of surprise that helped make yesterday's running of the bulls seem so outwardly impressive. *** Seminar Nearly

Warm greetings to you all in the New Year. I spent the holiday with friends in Colorado ski country, but as the photos below will attest, I've still got some sand in my shoes. The pictures were taken recently by two childhood buddies. One sails year-round, the other blogs to help keep the Army Corp of Engineers from doing for South Jersey's shoreline what it did for New Orleans' shoreline. The Corps would be thrilled to build a jetty on every beach if you let them, and the constant threat of having a someone else's jetty capture all of the sand that might otherwise have replenished your own beach has turned my friend into a local crusader. A few miles north of the scenes captured in these photos, on the same island, sits Atlantic City, a town that probably could have benefited from a few more jetties. Piled to a height of 200 feet, a Corps-built mountain or two might have smothered the casino business in its infancy, allowing the erstwhile Queen of Resorts to retain some of its former charm. Alas, the casinos not only destroyed the town physically, they replaced AC's brazenly corrupt political leadership with a slate of colorless bureaucrats. Thus did the tradition of Atlantic City's ex-mayors and supes finishing out their terms in orange jumpsuits pass into history. Who even remembers guys like Carlos LaSane, William Somers, Mike Matthews and Arthur Ponzio? The prosecutor who put them in jail, Herb Stern, went on to bigger things, and the hoods who paid them under the table were rubbed out by a more ruthless breed of wise guy. *** Bullish Din 'Deafening' Following is an interesting observation from our friend Peter Eliades at Stockmarket Cycles: Happy New Year to all our subscribers! As the year 2005 was beginning,