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0920 EST Monday February 13 2006

Good Morning: Our headline of Friday: Energy Selloff May Boost Equities Anew, proved prescient enough as following establishment of a mid-morning low, the Equity Markets began to turn sharply higher and continued to recover throughout the session, into a reasonably firm close as the Energy Sector continued its decline into week's end. We did recommend watching intently to see how things might play out and whether Crude Oil prices either approaching or breaking through $60 might be low enough to turn Equities higher again and also pointed out Friday would likely be an important day as a strong Friday close could set stocks up for a strong Valentines week ahead.

We also suggested that the Dow still appears to be gunning for 11,000, in spite of Thursday's sharp pullback and we gave considerable credence to our early morning call Wednesday for the market to turn and were extremely impressed by its resilience. So, in spite of the late Thursday selloff and an ugly to slightly scary open on Friday, we have to say we were singularly impressed by what turned out to be, an equally impressive rebound as Wednesday's, going into Friday's close. What we are interpreting from this, is that this market is telling us is that it is displaying latent signs of bullishness and it doesn't seem to want to quit, just yet. Conventional wisdom dictates after 14 rate hikes the Banking sector should be tanking. Instead it's just a few percent from all time highs. We are still remaining within contained parameters that could not only soon validate the Elliot Wave double 1-2 formation we have talked about but what is particularly noteworthy is the fact the current psychology is symptomatic of a Double 1-2 formation, wherein because of the intermittent pounding the market and some leading stocks have been taking, no one is expecting the possibility of an unexpectedly strong breakout to the upside, that could be that proverbial "Super 3rd wave or Mega Wave" to new highs we've also talked about. However, it should be clearly understood that we are at a potentially monumental crossroads in these markets right now, by some extremely notable historical precedents, wherein any kind of upside breakout here would actually diverge from historical norms and as a consequence could have enormous implications for the future and would have to bode extremely well for Dr Bernanke's tenure. On the other hand, a breakdown from here would not be so cool, and might lead to problems down the road for stocks, but also could be even more bullish for Gold and Silver than we originally projected.


A Blueprint for Bernanke?

The new Fed Chairman must understand where the economy is at in the big picture, because he has inherited a powder keg from Dr G, in the sense that he has to ask: By his genius or ineptitude (and we don't know which yet): "Has he handed me a fortune or misfortune"? As a consequence of this, with the way the market has been trading of late, it is also asking the same question, but is erring on the positive.

What Dr B has to decide is: Is he going to take the easy road or the hard road ahead? The hard road is doing a repeat of 2000 a la Dr G...

The high road is to leave rates unchanged and let the stockmarket help grow us out of our problems down the road and maintain World growth at a vibrant pace going forward, that may not be the unprecedented rate of 5% or so of the past year, or the runaway rate of 9% in China, but a slowing of same, that will be the aftereffects of Greenspan's 14 step program, to wean the World of its addiction to low rates.

We think Benign Ben will take the high road, and ease up on rates in due course, because he knows what a battle he is going to have to restore growth, in the event that he has to pull out all the stops, as Greenspan did post 911. It's way too risky in an uncertain World to go over the top and there always seems to be that unknown exogenous event looming out there, that simply has to be factored in, in today's insane World. On top of that, we still have unprecedented unemployment problems in China, Japan, France and Germany and many other countries around the World with the recent flare-up in France as yet another forewarn of Global discontent bubbling under the surface. The US may be Nirvana compared to year's past, with some of the lowest crime rate statistics in over 30 years and unemployment at record low levels except for the post war era of the Nostalgic early Fifties when unemployment briefly touched an all time record low of just 2.3%.

The Power to End World Poverty

We say, records are made to be broken and Dr B should be concentrating on leaving his mark in a legacy even greater than his eminent predecessor and should focus more on setting an agenda for all time record growth for the US and the World at large and ending poverty.

No one man has more power to influence than the new Fed Chairman and he can bring a World of difference to this 21st Century. He only gets one chance to make his mark. This is not a dress rehearsal, it's real. It's about making our lives better on this Planet for all, because we only live once and this is our time, here and now. The persona and profile of Ben Bernanke has already been well defined in some truly great commentary: Compared to the relative Utopia that many now live in today in a modern day World laden with previously unimaginable conveniences, our parents, grandparents and great grandparents had to endure the Great Depression and live through the untold miseries that the 2nd World War must have wrought, robbing us of uncles and aunts we've never known, other than by their gravestones. It was the Depression that led to WWll and the worst war so far to date. One event eventually led to another, as Germany's hyperinflation and post World War l chaos led to mass-hysteria and War. Unfortunately, this same kind of mass-hysteria has begun to re-emerge on a Global scale and is a potentially an ominous development. We already know the lessons this Fed Chairman has learned from his legendary work on the Great Depression and analysis of its causes: It was "avoidable". So, we can have some degree of confidence in knowing well ahead of time, that if offered the choice: Depression or Boom? More than likely, we already know the answer as many have recently commented: He'll go for boom first any day and do whatever it takes, to prevent a depression or even recession?

Why? Just as we have seen in the past so drastically occur: One event can lead to another, so it's best not to go there in the first place...

We believe the market is sensing this ahead of time. But we're still not taking it all for granted. That's why this is our most important time.

Trade Well
From the Desk of Savant

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