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Bears Spoil Rally: Dave's Daily

Wednesday was a stinker. There was widespread selling in all asset classes except for U.S. bonds. Much of this selling may have been due to year-end tax selling; a break in support levels for the euro; much weaker commodities especially in precious metals, and more worries about the health of the U.S. economy, corporate earnings guessed it...the eurozone.

Gold and silver losses have become more severe. In addition to tax loss selling there may be large redemptions occurring with hedge funds and the unique "mark to market" tax issues affecting commodity markets. In this case, even if the position isn't sold, 60% of long positions are treated as long-term gains with the balance as ordinary income.

The market is also rumor prone with volume still light. Most rumors Wednesday revolved around the eurozone where euro flight to offshore havens was much discussed. Further more investors are beginning to recognize the previous eurozone fix wasn't much of a fix at all. Rather it just bought some time. The focus remains on Italy where Italian debt needs to be sold, not just this week, but repeatedly. Investors are worried about collateral being put up for loans. Pay attention to this is the watchword.

Like most, we've been busy rearranging our portfolio allocations and strategy for the coming year; hence, no posting yesterday. As Yogi Berra once said: "The future ain't what it used to be." Amen to that! This makes strategies for 2012 more challenging than ever but we press ahead.

Former Fed Governor Gerald O'Driscoll wrote an op-ed in the WSJ today suggesting strongly that the Bernanke led Fed is covertly bailing out Europe. Further, he strongly states that Bernanke is lying when he asserts they aren't. That's a powerful and controversial assertion.

Volume remains light making it easier for bears and bulls to push indexes around. Breadth per the WSJ was quite negative reversing some short-term overbought conditions.

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