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0920 EDT Monday April 03 2006

Good Morning: A few years ago some Pentagon think-tank came up with an idea to create what amounted to a futures market on terror, in the belief that the US might gain some kind of warning device that would equate to the so called increase in noise or chatter prior to 9/11 and would therein give intelligence agencies a heads up on what might be a bad tiding or event. That idea was quickly killed by congress...

What could have been a much better idea, might have been a more appropriate name, such as Global Security Futures and they probably would have worked very well, as a kind of 11th hour mechanism for calibrating the state of Global security, that actually would involve many issues, not necessarily confined to wars, conflicts or terrorism, but might even incorporate Global warming, Hurricanes and Earthquakes.

Although we don't yet have Global Security Futures that could be very helpful as a kind of barometer of how the World might assess itself, we have Gold and Silver Futures. They are in effect a pretty good proxy for current and future concerns over Global Security and right about now, Gold and Silver Futures are white hot, but in anticipation of what, not the least of which is inflationary concerns and rapidly increasing shortages. Although it's hard to gauge the amount of premiums created by unfolding events in the Middle East, they would have to be high.

With less than a month before some kind of inevitable confrontation occurs, right now markets are telling us they fear such an inevitability and the impending consequences could change the outlook for the financial markets considerably. The metals markets are also telling us, they are uncomfortable over the possibility that some kind of unforeseen event could take place sometime soon, that would add to tension.

The enigma that the last few days left us with, is a new 5 year high in the Nasdaq Composite, new all time highs in the Russell 2000 index and S&P 400 Midcap and S&P 600 Indices, post yet another rate hike from the Fed, that did take a bit of the shine off larger cap indices.

So what do we make from all of this? To be honest, it doesn't get much better than to have as strong a quarter as we've had and cap it off with a string of new all time record highs. What was a little bothersome was the way the larger cap issues waned over recent days. That could be reversed as soon as Monday, but, that's the operative word: Reversed. If markets don't continue higher on Monday, it could be a problem. On the other hand, a continuation to the upside could be very bullish indeed and the same can be said for Silver, Gold and a host of other metals that have been hitting new all time highs, from Platinum to Copper and Zinc. And that is the story of the moment. From our viewpoint, as long as we can get through April without too much of a correction in any of the above sectors, we could be in for the ride of a lifetime in these markets that might be augmented by the belief that the Fed really is coming to the end of this current tightening cycle...

Trade Well
From the Desk of Savant

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