Big picture market strategy

I have lots of points to make.

1. I noticed a loose correlation between the San Diego housing chart and the Dow.
From 1983 until the crash in 1987, the Dow more than doubled. Most of this gain was in '86 and '87, just when the housing market was bottoming out. The crash of '87 and a weak market through '91 corresponds to a huge housing boom. Then came the housing bear market from 1991 to '96. In L.A. the loss was over one third in real terms. Then came the Dow bull market of the '90's, which saw the Dow more than quadruple. The peak came in late '99 and hasn't been eclipsed since. Is it a coincidence that the housing market took off in 2000?


Conclusion: sometime in the next 6-12 months, the Dow will see the best buying opportunities of the next decade.
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Question: Which is bigger, inflation or the housing bubble?

A contributor to Barron's has suggested that Bernanke has temporarily given up trying to kill inflation because the 10-30 year section of the yield curve has stubbornly refused to believe in it. Well, maybe his best bet is to let the monster get up and scare the bond market into backing him up. Right now, the housing bubble is definitely bigger, and could very well cause a recession that would swallow inflation.

Thought: Big Ben can't save us from both inflation and the housing bubble. One of them will cause a recession. So, the correct bet to make is on a recession, even more than the bursting of the housing bubble.

What are the prospects for a combination of recession and inflation?

I would say their good for two reasons. A recession will cause a drop in the value of the dollar. At the same time, inflation is being driven by commodity demand from China and India.