Last month I wrote of
one last party before the
crash commences. Well,
it appears that the oil
speculators have robbed
the US market of even
that dubious pleasure.       Let’s talk numbers
here. Yes, oil is driving
inflation upward. And
yes, there is more demand than supply of the black stuff.
But that has nothing whatsoever to do
with current prices, which are spiking
during the normal slack period between
winter heating and summer driving and
cooling seasons.       No, this is being driven by the folks
who are bandying about self-fulfilling
talk of a “super-spike” cycle.       But what have they really stolen from
American investors? One last illusory
fling before a long slow grind? The dilemma The market is facing the most basic of choices: Can it survive without the
loose money policies of the past two
years? What’s more, can it survive those
policies themselves?       Common knowledge: When the econ-
omy and market are stalled, you pump
in some cheap capital to resuscitate
them. There are several methods avail-
able. You can cut taxes, you can print
more dollars, or you can reduce the
short-term banking rate.       We saw all three. In spades.
      But here’s the trick: Sooner or later
you have to stop, or you will swing the
pendulum too far in the other direction.
Too much cheap cash simply ruins the
value of said cash. In other words,
inflation.       But when to cut off the flow is always
subject to debate. If you ask Wall Street,
they will always say, sure, cut it off.
Later. Soon. But never now. The point of the Fed That’s why there is a Fed. An inde- pendent group with a strong chairman
who will ignore the pleas from Wall
Street and do his best to dampen the
highs and lows into nice continuous
growth.       Well, now we are hearing the “R”
word again. I have lost track of how
many times we have seen huge
boom and bust cycles under this
Chairman.       Now we are faced with overheating
demand prior to the market setting a
higher high subsequent to the 2000 high.
If the market does indeed turn tail here
and set another lower low, we will dis-
cover that we are mired in a much deep-
er recessionary cycle than first anticipat-
ed—and will have to face it without
many of the necessary tools, having
already shot our wad (think muzzle load-
ing cannons here, people). The dichotomy
resolves This scary moment is clearly reflected in the split between the positive monthly
and negative daily charts. Which will
win out? When the two disagree, the
downside always wins, at least in the
short term.       And if it is the long-term chart that
gives in and moves to the negative, it
will be bad news for the buy-and-hold
crowd for sure, and difficult trading for
us during those moments while the mar-
ket stares like a deer at the oncoming
headlights.       If you are ready and willing to either
short the market or trade put options
very quickly to catch the downlegs, or
stern and patient enough to buy long-
term LEAPS against the whole drop,
you should find the next market phase
quite invigorating. 12 TAIPAN Publisher:
J. Christoph Amberger Editors:   Christian DeHaemer,
Siu-Yee Ng, Briton L. Ryle, Adam
T. Lass, Bryan Bottarelli, Ian
Cooper, William Colburn, Martin
Denholm, Ann Sosnowski, Erin
Beale, Alex Chinn, Abe Said,
Sara Nunnally, Michael Wiles Managing Editor:
Ned Humphrey Art:   Elliana Brocato Fulfillment:   Alex Ferguson Tours and Conferences:
Barbara Perriello Customer Care:
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T #123384745 TAIPAN USERNAME: PASSWORD: www.taipanonline.com Next up: The grind The daunting task of making money in an
accelerating downside arc. Adam Lass