Patience

I think that the economy remains deep in a credit contraction, except for Fed activity.

As the "adverse" scenario for the bank stress-tests shows, they need $599 billion if unemployment averages 10.3% in 2010. It appears that this number might be optimistic.

At the same time, we have inflationary blowback from oil and mortgage rates killing any recovery.

But Bernanke only knows how to do one thing: print money. Private debt will default or be converted to public debt, and public debt will be inflated away.

In the meantime, the inflation trade has had a good 3-4 month run and is now running out of steam as it starts becoming self-defeating. So I need to bet against inflation here. What's this trade? Oil down, stocks down, bonds back up a bit, dollar up. Right now, I have 30% in gold, which I like. I have 30-40% in stock shorts, and 30% in Euro shorts.

Unfortunately, I sold my TBT too soon. It's now pushing $60. I would like to go back in when it drops back down to the 50-day moving average. Another negative for Treasuries is that China's exports just hit a record plunge of 26% yesterday, which means that they're going to be buying fewer Treasuries.

Well, probably the safest thing to do is wait for TBT, and oil to fall back to their 50-day moving averages and then decide if they're headed back down or the inflation trade is finally here to stay.