I’ve completely missed the rally that’s gone on the past week or so off the bottom.  The setups were there, I didn’t take them.  In fact I actually lost a little bit of money today getting stopped out of my long in VVUS.  A lot of strong stocks are breaking out now, I like the list that I’ve built, I shared it with you last night.  Things are crazy extended here short term though, we got a monster overbought reading on the McClelan Oscillator tonight, stochastics on almost everything are way overheated, it’s time for a rest.

I like to use the saying, there’s no such thing as greed in the market, just the fear of losing, and the fear of not having enough.  Well, today at the close I started to feel a little bit of that fear of not having enough, especially given I’ve got nothing.  Whenever I start to feel this way I know we’re at a short term top in the market, I can read my emotions in that regard very well.  I’m not as good with the fear of losing side, I think it’s harder for everyone to recognize when the selling is overdone as opposed to the buying.  I can feel the fear in the market as well, on the StockTwits stream, in the traders I talk with throughout the day.  I’m lucky to have built such a big lead on this market, I can be patient and pick my spots.  If I didn’t have that luxury I would certainly be long right now to a good degree, chasing price up, but I’m not, so here we are.

My advice, if you’re not long yet, don’t panic and buy into this, if you’re real long, take some off the table tomorrow, and if you’re 20-30% long, hold your positions and get ready to add on the next pullback.

I’ve been thinking quite a bit the last couple of days about the inflation vs deflation debate.  Frankly it’s a stupid debate, because we’re seeing both.  Deflation in the OECD and inflation in China, Brazil, and a few other pockets of real growth.  It’s pretty obvious now that Europe is screwed.  I talked on this blog, months and months ago, about how I was not educated enough on the issue of sovereign debt, and that I had gone on a mission to talk with people who were and learn.  I did, and although I am still no expert, I believe I’ve got a pretty good handle on the situation and the possible outcome scenarios.  Remember that as a trader, it’s not our job to make predictions, pundits and economists do that, it’s our job to recognize the trend and trade it.  Sometimes this requires fundamental knowledge of the assets in question, and frankly, sometimes I could care less.

Europe will tighten its collective belt now, they are obviously not on the same page as Bernanke and Co. here in the good old US of A.  Deflation is Europe is real and it is coming.  The difference between the USA and Europe now is that reality has caught up with perception with those Eurotards, we are still living in la la land and probably will continue to do so for some time.  And you know what, that’s fine with me.  So many people complain about our debt to GDP levels, how we are broke and can’t finance our debt, blah blah blah.  Listen because this is a very important point.  Your debt levels don’t matter until they matter!  No one knows where that threshold is, in fact it most likely moves over time.  It all depends on how your creditors feel today and whether they are willing to lend you more money.  Greece has run out of time, the same can be said for most of Europe, there’s no one left to lend.  But it wasn’t their debt levels that did it, it was just time.

When will the bells toll for the US, who knows, maybe never.  Europe’s creditors, who ironically are themselves to a large extent, have decided that enough is enough.  Will China ever pull the plug on the US?  It would seem that they would destroy their export driven economic growth if they did seeing as we would have to go through a major deflationary period here.  Now, if I had to take a guess as to when they might do it, if at all, it would have to come after they were able to ignite domestic consumption.  How long it takes to do that, who knows, maybe never, the Chinese are a shrewd people, the inherently like to save.

The point here is that it doesn’t matter what your debt levels are, just that you’re able to sell more debt, when that ends, you’re screwed, and the market action will bare that out.

My question tonight is, does Bernanke have any bullets left in the chamber to ward off what’s taking place in Europe, or are we going to see another round of stimulus, pumping more money into the system, government spending as a last resort?  At the bottom in 09′ it was rather obvious what he needed to do, reflate the world.  But now that he’s done it, can he stop us from slowly grinding out 10 years of deflation back down to the bottom, or even lower?  There’s no play book for this, he had one for the reflation, but does he know how to keep us reflated?  I’ve got no clue, but I can tell you this, if we raise rates now, or pull back on government spending, the air is coming out of the balloon.  I’m not saying that’s the right or the wrong thing to do, you make that decision, I’m just laying out how I think it plays out.

On a similar note, what is the federal government going to do about a coming wave of municipal bond defaults?  Obama spoke strongly the other day making the case that we can not let states fire teachers, police, and healthcare workers because of budget issues.  But what struck me more was his tone.  He wasn’t as much telling, as asking the congress not to let this happen.  I don’t believe he’s got the power to see this through, I just don’t think he’s got the proverbial bullets in the gun.  We’re already starting to see defaults in a few municipalities, they will be big tests.  Warren Buffett came out publicly saying that although he sees a major issue for muni debt right over the next hill, that he believes the government will step in to help out the states when it comes to crunch time.  Oh how I love government arbitrage, also known as moral hazard.  So I’m guessing that Buffett will go in and scoop up some of that debt at 60 cents on the dollar when it looks the bleakest, right before the Congress steps in and declares another trillion dollars in state aid.  Will we take the same approach as Europe even though our bonds aren’t getting crushed?  Will we bail out the states?  If not, the US Dollar isn’t worth crap.

Was anyone surprised that they had a problem ordering their new iPhone4 today?  I went down to Radio Shack after the close and found out they will give me $100 credit towards the new phone for giving them my existing 3G, which is awesome.  So I’ll wait, and be the first one at the store on the 24th.  Oh, and I might as well just add the obligotory, AT&T blows.