Reflation has been stepped up

An additional $350Billion economic stimulus is in the near term planning. A fiscal stimulus (deficit) is also said to be planned to further punish the hoarders of cash. The dollar is rapidly declining toward its previous low after hoarding earlier this year had strengthened it almost 20%. You may now refinance your house at 4.5% fixed rate.

All of these actions will avert a deep recession in the USA but inaction in Europe makes their future more bleak. Asia still has an enormous home market to create that can provide them the growth rate the USA had in the late 1800's.

USA stock futures are currently up slightly but the short selling usually occurs in the last hour of the day. International markets appear to be losing their volatility and hence it is more difficult to judge their strengths. Asian markets are higher with India up 3.7%. Europe is up about 0.6% on average.

The last hedge funds to switch to the long side will be caught off guard and it is entirely possible that we will see the most pervasive and dramatic short squeeze in history in early 2009. It will be peak quickly and probably will occur too fast for us to get a sell signal when it does. But if your portfolio recovers all its losses of 2008 or if it is suddenly up 40% from where we are today we would not wait for a sell signal. Remember; up 40% from here gets us to where people were before the values dropped only 29% if you do the math. The percent gains will appear much larger because we are starting from a place 30% to 40% lower than when the bear market began.

All the efforts to avoid a deep recession are now focussed on punishing those who hold/hoard cash. They are directed to relieving the pressure on those in debt and stopping the decline in commodity prices, which occurs from deflation. The economy is being rapidly re-inflated now and that should be good for price of stocks and commodities in the near future.