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In an essay published by Mises Institute, economist Frank Shostak, whose work has been featured here many times, debunks the fiction that last quarter's 5.7% GDP growth was a harbinger of recovery.  In fact, it is savings and investment we should be measuring if we want to predict the strength of a recovery.  GDP statistics, says Shostak, tend to overvalue the kind of Keynesian-type stimulus that ultimately destroys wealth.  Here's an excerpt: "Once the central bank raises the pace of money expansion in order to lift the economy out of a recession, it prevents the demise of various false activities. It also gives rise to new false activities. The outcome of such so-called economic growth is nothing more than the strengthening of wealth consumers and renewed pressure on wealth generators. All this undermines the process of wealth generation and weakens true economic growth."

A note from a long-time subscriber, a cautionary note concerning the heavy dilution of mining penny stocks: "I just got back from my yearly trip to Vancouver to attend junior mining conferences and presentations, and the one thing that really stuck out was the amount of financing that occurred at sub 10-cent levels. Billions of shares were issued in Q4 and Q4 2009 to keep companies afloat and move their projects along. A lot of this paper will begin to trade freely in the next six to eight weeks. I have one junior that has 143 million shares coming off escrow, with free trading to begin next week (float is 332 mm shares) of shares financed at 0.28 cents CDN$. The stock is 0.65$. There are hundreds of these situations right now. For people who do not trade juniors often, this set-up and the potential sell-off could turn into a real "learning' experience."  I saw John Kaiser speak at a workshop on Jan 18 on this topic and the magnitude of this issue is much larger than I have ever seen before. Just thought you might be interested. "

My latest interview with Al Korelin of The Korelin Report concerned the inflation vs. deflation conundrum.  Click here  to access it.

The following describes how I usually manage the risk of a trade as it appproaches a price target: Some successful traders say it matters less where one enters or exits a trade than how one manages its risks. One way we can keep risk tightly under control as a stock moves up or down is to use dynamic, or risk-adjusted, trailing stops. How do they work? To illustrate, let’s take the example of a trader who buys a hundred shares of XYZ stock at $62.00, with the intention of selling it when it reaches $65.00.  In this instance the expected gain is $300, or $3 per share. But how much risk is acceptable? The answer, both initially and as the trade progresses, will depend on how and under what circumstances the trader determines to exit the position. For instance, a prudent trader might decide before initiating a position that, once on board, he will risk no more than $1 to make $3 at any point along the way. Thus, with a target of $65, if he is able to buy 100 shares of XYZ for $62, he should use a $61 stop-loss initially, limiting theoretical loss to $1. (The risk is theoretical because in practice there is no assurance the trader will be able to get out of the position at the predetermined price. In fact, stop-loss orders are often executed at prices far worse than intended.) In this example, the stop-loss at $61 is referred to as “fixed” because it will remain unchanged as XYZ moves up or down within certain limits. But let’s suppose the stock rises straightaway to $63.50. At that point the trader would have an unrealized gain of $1.50 per share, with additional profit potential of $1.50 per share (assuming as before that XYZ reaches

The following comes from Van Hoisington and Lacy Hunt, whose thoughts have appeared in Rick's Picks before: "Since 1990 Treasury bond yields have steadily moved downward in line with a more benign inflationary environment. Those yearly declines in yields continued last year with an average interest rate of 4.07% versus 4.28% in 2008. Obvious sharp reversals have occurred in their downward trend due to shifts in psychology reacting to generally transitory factors, as we saw in 2009. To remain fully invested in long Treasuries in this high volatility environment requires a simple discipline based on the academic literature which demonstrates that over time bond yields move in the same direction as inflation (Fisher equation). "Presently, we view the inflationary environment as benign because: 1) the U.S. economic system is overleveraged and academic research confirms that this circumstance leads to deflation; 2) monetary policy is, and will continue to be, ineffectual as efforts to spur growth are thwarted by declining asset prices, loan destruction, and adverse regulatory influences; 3) the federal government's spending spree will necessarily cause taxes and borrowings to rise, further stunting any economic growth. These factors ensure that inflation will be quiescent. Interest rates easily can and do rise for short periods, but remaining elevated in a disinflationary environment is contrary to the historical experience. We are owners and buyers of long U.S. Treasury debt."

From our friend Phil Calderone, a possibly timely note concerning 3Par, Inc.: "I recommend taking a long position in 3Par Inc. (PAR) immediately at this price level, around $10 per share. Upside appreciation potential between 35-100 percent. Downside risk should be no more than 5%. Minimum price target is 15-16 but being a likely takeover candidate, more likely to see 18-20. Buy tomorrow, Monday 1/25. Earnings coming out Thursday 1/28 after the close. From a Hidden Pivot perspective, 3Par has upside potential to as high as 15.42 0ver the next 4-6 weeks.  The stock has already breached midpoint resistance at 11.89, and its daily chart therefore remains bullish despite a sharp pullback from early-January's highs near $14.  I offer Phil's recommendation with the usual caveats that apply to "hot stock tips".  I have not done due diligence myself and proffer only a technical picture that looks promising to me.  Here's a description of the company from Google sources: "3PAR Inc. is a provider of utility storage for mid-sized to large enterprises, financial services firms, cloud computing service providers, consumer-oriented Internet/Web 2.0 companies and government entities. The Company’s customers include organizations that generate and retain data use enterprise-level storage systems, such as the Company’s for storing, protecting, and recovering electronic information in the form of digital data. Its target customers are primarily organizations, including external service providers (MSPs and HaaS/SaaS providers) and internal service bureaus (information technology (IT) organizations within enterprises and government agencies). As of March 31, 2009, the Company had sold over 1,200 utility storage systems to more than 500 mid-sized to large enterprises, financial services firms, cloud computing service providers, consumer-oriented Internet/Web 2.0 companies and government entities worldwide."

A link to John Hussman's lengthy but promising "Inflation Myth and Reality" came via e-mail at the tail end of this 16-hour work day, but I lacked the energy to imbibe it as bedtime reading.  To anyone who is  interested, or who wants to get a head start on the discussion,  click here  to access the essay.

Click here for the Online Hidden Pivot Calculator. There is also an Excel-based version of the Hidden Pivot Calculator.  These are no crystal balls, just devices to mechanically calculate targets, entry points and midpoints from price patterns that you have identified.

Another interesting report out from Auerbach Grayson.  Click here  to access their latest, a ten-pager advanced as follows:  "Rich Ross our Technical Strategist prepared the attached document last night. Read all of it please to see that the resonance of higher markets is ubiquitous not just in NY and Zurich but also in Bucharest, Istanbul, Colombo, Almaty, Caracas, and Tallin. Is the world awash in money? (check your pockets?). If in fact you need a glib answer look no further than the estimable Mr. Blankfein who during yesterday's testimony by The Four Amigos said, 'Money became plentiful, and so people paid less attention to risk'. Oh, ok, now we know about the money, but just for a reality check here, are we really floating on a sea of money or in fact is there a case that away from the Wall St factories there is an immutable momentum of real productivity and growth out there. We think so and it continues to deliver the levelling of the global economic playing field. By the way, today's subject line's first use is attributed to JFK in a campaign speech in 1960. Clearly a call at that time for government spending, it was later perverted by Laffer as a tenet for Reagan trickle-down economics."