Some of China’s stockpiling may well have been due to speculative excess, rather than any rational plan on the ground. That realization played a role in the market carnage seen this week.

As Grant’s Interest Rate Observer has been known to say, “We wrote it. Did you read it?”

My slim hope is that the Chinese really and truly know what they are doing, because, in fueling investor optimism with such flair, they are playing a high stakes game. My worry is that they drop the ball, somehow, and the result shows up as a violent wake-up call for “high beta” assets… emerging market equities, energy, commodities and the like.

What happens next is far from clear. The huge [commodity] stockpiles could continue to grow at a breathtaking pace – after all, Beijing has plenty of greenbacks to work

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One way to hedge against inflation is to buy gold and silver. This is what hedge fund legends John Paulson and David Einhorn are doing. As Justice Litle pointed out last week in Taipan Daily , Paulson and Einhorn “have gold and gold stock positions running well into the multi-billions for their respective funds.”

Underground investor Christian DeHaemer says junior gold stocks are the ones to watch. In fact, he says this asset class will be “the number one asset class over the next two years.” This means that junior miners could make you more money than any other asset class in the near future. According to DeHaemer, there are several factors contributing to this play (most of which will be familiar to Notes readers).

For one thing, the US is creating more money than at any time in history in an effort to inflate the next bubble, save ...

While the mainstream media has been focused on the run-up in equities, one overlooked sector has turned “red hot,” according to Justice Litle in Taipan Daily. Justice is talking about the grain markets – foodstuffs like corn, wheat, soy and sugar.

This chart shows the price movements since the beginning of the year of the Powershares DB Agriculture Fund (NYSE:DBA). It represents a basket of futures contracts for commodities such as wheat, corn, soybeans and sugar. As Justice says, “Commodity after commodity has roared back to life, thanks to a combination of renewed inflation expectations, a crashing U.S. dollar, and newly bullish fundamentals.”

Last Thursday, we discussed at length the effects that inflationary expectations are having on the market. We said that Treasuries were a bad

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Get up, stand up… stand up for your rights…Get up, stand up… don’t give up the fight…– Bob Marley & The Wailers. Thanks to you, dearly beloved reader, Jim Amrhein and I have a friendly Taipan Daily rivalry going. It seems Jim’s time spent basking in the glory of an all-time reader response record (for “A Kind Word and a Gun“) was all too short.

As quickly as you, the readership, set a new feedback milestone with your outpouring of thoughtful replies on guns and Second Amendment issues, you then outdid yourselves with an even bigger response to Friday’s missive, “Will California Go to Pot?”

So now ol’ Jimbo and I have an excuse to rib each other in the one-upmanship

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Another sure sign that inflation is a clear and present danger is the recent rise in oil prices. Wednesday, crude oil set its 2009 high at $54.83 in New York intraday trading.

And as Adam Lass points out in Taipan Daily, “for most of this year, $50/barrel has been one of those psychological ‘lines in the sand,’ much like Dow 8,000 for a while there.”

There can only be two reasons for this, according to Adam:

First of all, there is the obvious: if the global economy recovers even in the slightest, the ensuing increases in manufacturing, shipping and travel will require energy, and despite the best of green intentions, for now energy still means oil.

Second, despite all the rumblings about finding a new world currency, oil is still priced globally in dollars. And while it may be taking Washington an agonizingly long time to actually disburse all the

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The first installment of “A Kind Word and a Gun” set a new record for passionate reader response. Now Jim Amrhein is back, and he wants to know how you feel about the Second Amendment (among other things).

“I don’t believe gun owners have rights.” – Sarah Brady, 1997

“…the right of the people to keep and bear Arms, shall not be infringed.” – excerpt from The Second Amendment, 1787

I know you’ve all been waiting for the second installment of this series, in which I promised to give you my personal firearms recommendations — plus share with you some revelations about how you may be able to make money from the modern boom in guns and ammunition…

But before I get to that, I’ve just got to take this opportunity to respond to the extensive feedback that part one of this series

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Perception and reality are not the same thing. And believing they are is a very dangerous for investors. Why? Because you can very easily fall into the trap of “market blindness” – you can assume you see everything while missing the elephant in the room.

Before you ask, we haven’t been smoking something strange here at the Notes office. We’ve been reading Justice Litle’s fascinating essay on trader psychology in today’s Taipan Daily. And we figure contains an important lesson for underground investors.

Justice says a famous experiment by a group of Harvard psychologists reveals big “holes” in human perception, especially when we are concentrating hard on a task. The psychologists asked a group of test subjects to pass a basketball back and forth between players dressed in black and those dressed in white. All they were asked to do was count the number of passes between the two teams.

The psychologists

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Notes from the Investment Underground

April 14, 2009

Palermo Viejo, Buenos Aires, Argentina

Richard Russell: Why this is a bear market correction… That latest outbreak of investor credulity… 25 biggest earnings-per-share movers and shakers heading into earnings season… Banks to be allowed to screw up indefinitely… The great “too big to fail” fraud… Bailouts costing $42,105 for each U.S. citizen… Bush-Obama tag team piles on debt at the rate of $60,000 a second… Bob Higgs on C-SPAN… China wises up… And more!

*** This Richard Russell quote is a must-read for investors thinking about buying back into stocks. Russell, now in his 50th year of publishing the excellent Dow Theory Letter, believes we are now witnessing a bear market correction.

The essence of Dow Theory has to do with VALUES. At the March low the price/earnings ratio for the Dow was 25.79 and the dividend ...

As you may have figured out, these Taipan Daily missives are (usually) written the day before. That way they can hit your inbox in time for a read with the morning coffee.

With the old “drinking from the fire hose” routine being extra intense as of late, and Tuesday being a rare travel day for yours truly, I haven’t had time to digest the finer points and nuances of Tim Geithner’s new bank plan just yet. I’ve got my stack of stuff printed out, though, and should have a proper state of fulmination worked up by Friday.

Here’s my quick take: Clearly the market liked the plan, based on Monday’s action – or maybe the market just liked ANY semblance of a plan – and just as clearly a number of commentators did not. Paul

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Alex’s Notes: My favorite part of this article was this:

Bluffing Into the Nuts

We’ll close with a quick poker analogy.

In No Limit Texas Hold ‘Em, to hold “the nuts” means you can’t be beaten – that your hole cards in combination with the board give you the best possible hand.

Needless to say, it is useless to bluff a player who is holding the nuts. Why would they fold? They know they have the best hand. If you raise such a player, they will happily call… or better yet shove their own stack in the middle, a reraise to put you all-in.

If the Fed or the IMF were to dump gold onto the market in this environment, I believe it would be the poker equivalent of bluffing into the nuts. I don’t think the powers that be are that dumb.

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Written by Justice Litle, Editorial Director, Taipan Publishing Group  

Is

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