Peter Brimelow: Bulls bask, but bears and bugs regrouping

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By Peter Brimelow
CBSMarketWatch.com
Thursday, October 26, 2006

http://www.marketwatch.com/news/story/Story.aspx?guid=%7B8C8FB303%2D1702...

NEW YORK -- Don R. Hays of the respected Hays Advisory institutional service was his superbullish self Wednesday, and that's before the Dow Jones Industrial Average made a third successive record high close as the Fed again declined to tighten.

Hays wrote: "NEVER, NEVER, NEVER in my 37-year career have the secular signs been more exciting than they are today. Let me say that again. This is not a flamboyant statement. ... We believe the stock market's rally will prove in time to have known that the Fed despite their Open Mouth Committee statements was opening the spigot. Over the last two months the growth rate of MZM and M2 (money supply measures) is 7.4% and 6.9% respectively, and that is very, very good news IF it continues. We believe it will. ..."

Hays even interprets as bullish the fact that the stock market is overbought according to some indicators: "In truth, this is bad news ... or good news. In strong bull markets an overbought condition that reaches very overbought levels is a very good sign of buying power ... if confirmed by psychology readings showing the buying power coming from the smart side of the aisle."

Hays argues that this is now the case. This is his asset allocation: "We are 90% bullish and have 10% cash, just in case the market gives us that more acceptable and easier time to buy new stock positions on a pullback."

In contrast, I've recently begun checking with a radical gold bug site www.Lemetropolecafe.com.

roprietor Bill Murphy was totally unimpressed with the stock market, which he believes is being groomed prior to the Nov. 7 federal election: "This joke of a U.S. stock market goes on and on. For most of the day the Dow was down, while the S&P and DOG" -- Murphy's nickname for the Nasdaq -- "were slightly higher. After the Fed announcement, the Dow rallied above unchanged, sunk back down to near its lows once again, and then made its usual late charge to end up on the day to give us another all-time high, following President Bush's press conference this morning."

But, Murphy believes, gold is beginning to struggle free of what he claims are its manipulators, whom he calls the "Gold Cartel":

"The Amex Gold Bugs Index (HUI) is leading the way up. It broke out today, decisively. It made new recent highs by a wide margin, breaking out of a well-formed base, while both gold and silver are well off recent highs. This makes sense. The Gold Cartel have moved the shares down ahead of the election. They want out (of their short positions), or want IN (to long positions) because they know what is coming in the months ahead.

"Gold is moving irregularly higher. The move up should continue into the elections on November 7. However, super-excitement will not be allowed until the elections are over. ... While the Gold Cartel gradually covers, the specs remains VERY short from a historical perspective ... which gives us a shot at a spectacular, short-covering squeeze in the weeks and months ahead."

Murphy also thinks there's evidence that holding gold down is getting more difficult:

"Volatility in the prices of both gold and silver is present almost on a daily basis, both up and down. This tells me the price manipulators are stretching to find enough physical to keep the prices down these days."

Interestingly, Dow Theory Letters' Richard Russell (who thinks the stock market is "severely overbought, but evidently deciding to stay that way") also wrote Wednesday night: "It looks to be as though the whole raw materials, commodities, oil, gold, silver, base metals area has finally bottomed and may now be making up for lost time on the upside."

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