Summer Gaze

Out on the road today I saw a DEADHEAD sticker on a Cadillac
Little voice inside my head said, 'Don't look back. You can never look back.'
--Don Henley

As we enter the back nine for '09, here are three themes that I'm assigning a decent probability to:

1) State and municipal funding issues take center stage. We're already seeing some evidence of this (#2,3,4 here). Now that the US government has bailed out corporations, how will it be able to say no to states stumbling to DC with hat in hand?

2) Unemployment continues higher. We're just south of 10% currently using current government methodology. Economists are herding close to the 10% number as a ceiling. What better motivation of continuation north?

3) Resumption of debt destruction. Markets have rallied over the past couple of months largely because of a belief that deflationary forces are behind us. However, only a small fraction of the mamouth debt and leverage out there has actually been retired. Particularly if #2 above remains in force, then chance favors more deflation in the near future.

In terms of market positioning, this translates for me into relatively high levels of cash--with some bullion, commodity ETFs/ETNs, and a couple of dividend paying stocks in the mix to guard against an inflationary surprise. I'm also trying to retire mortgage debt (my only debt) as quickly as possible.

position in gold and silver