It's year end and time to wrap up loose ends regarding the the Market. Dan Frishberg has some thought that will be beneficial to all.

1. A View from the Switch and a Year-End Preview with “The Money Man”
By Mike Wazowski
It’s that time of year again, the time when commentators, pundits and, these days, bloggers get to
exercise their hindsight and look through the rearview mirror at the steps and missteps of the previous
twelve months.
But smart investors don’t spend much time looking backwards. So, on Christmas Eve eve, as the year
drew to a close, Dan “The Money Man” Frishberg invited his co-host of the day, Chicago options and
futures trader Jack Bouroudjian and special guest, market analyst extraordinaire Elaine Garzarelli,
president of Garzarelli Research, Inc., to trade in their rearview mirrors for crystal balls and talk about
what they see coming down the road before them. So what did these masters of the market see coming
toward them?
According to the Money Man himself, there is still some short term danger ahead. The market, which
has been a somewhat lurching upward climb, may be in line for a course correction shortly after the first
of the year. For that reason he is exercising caution and not jumping in to what still appears to be a
strengthening market with both feet just yet. But, over the longer haul, Frishberg is reading his Market
X-rays as showing continued strength and more buying opportunities down the pike.
The indices he is looking at are inching up but the immediate circumstances are that demand is
weakening and the number of companies participating in the rallies is thinning, with a rising number of
new lows, a circumstance Frishberg refers to as a “Hindenburg omen.” But, he notes, looking beneath
the surface figures, half of what is being traded are closed-end bond funds and those are what
predominate among the instruments hitting new lows. Meanwhile stocks in solid companies are not
showing signs of a Hindenburg moment. This means the time to act is approaching fast, before the herd,
who are not looking at that, begin to notice. So, medium term, things are looking good.
And, although Frishberg is mainly focused on American prospects, he is also seeing some beneficial
signals coming from overseas. In particular he points to the recent easing of tension on the Korean
Peninsula where, if things go on as they have been in the past week or so, the North Koreans show signs
of putting down their sabers after rattling them for most of the fall, even indicating in informal talks with
New Mexico Gov. Bill Richardson, that they may be ready to allow nuclear inspectors back into their
country. After the dust settles from the current technical uncertainties, he is looking favorably at moving
into the South Korean ETF, EWY, which he called “very attractive” for the medium term.
From his view from inside the Loop Jack Bouroudjian is seeing options traders showing a tremendous
optimism, with very little put-buying (traders betting on the markets going down) and what he called an
“extreme amount of call-option buying [betting on the markets going up] in Chicago”. According to his
interpretation, even before the November election professional futures traders like himself began
getting the feeling that the political pendulum is swinging back toward a more pro-business bent and
Pres. Obama shifting to the center from what many saw as a heavy lean to the left in the first half of his
first term in office.
Adding to that he said the markets had already factored in the big Republican win in the midterm
elections – a prediction that did not disappoint as it would have if it had not come to pass. The good
feelings and higher expectations since then, he ascribes to a “Honeymoon Rally” by traders relieved by
the extension of tax rates from the Bush reductions. Of course, reading the financial tea leaves always

2. involves some risk – the ones Bouroudjian sees are if job creation does not keep pace and improve in
the coming months or if we get $90-a-barrel oil, since sustained higher prices act as a tax. The
unresolved question is whether the recent spike in these highs is justified or if they simply reflect
speculators looking to make a fast buck.
Dan Frishberg sees this as part of a longer term trend he has talking about this for a long time: with the
global economy growing at a rate of around 6 percent, the global middle class, especially in Asia and
Latin America, is growing, There is simply not enough capacity in the supply of natural resources and the
transportation infrastructure to meet the increasing demand of consumer and tech goods around the
world. So these resources will inevitably be rationed by price.
At the same time Bouroudjian did issue a warning about the coming danger of stressed local
government coffers. Defaults in municipal bonds could amount to hundreds of millions of dollars in
losses. While these tax-sheltered bonds had traditionally had been very safe, he recommends that
investors consider seeking protection from these assets until the municipalities are get past their serious
fiscal problems. That, most anyone can foresee will only happen when the economy has recovered to
the point that tax receipts return to pre-recession levels and they straighten out their pension problems.
For his part Frishberg points out that even bonds issued by cities that are not going to default, and so
are relatively safe, their yields will remain the same while the market yields are going up, making the
relative value of these assets go down. In that case the only way to get your money out of it and put it
into something more productive is to sell them for less than they are selling for right now.
Elaine Garzarelli is one of the most successful people on Wall St. at predicting market turns, including
the 1987 crash and its turn-around point, the 1990 bear market (and it’s end in September of that year)
and the 2000 bear market in May of that year. She uses four indicators to make her forecasts – the
economic cycle, monetary policy, valuation, and investor sentiment. Of those, only the last is pointing
downward, while the other three are bullish, giving her an overall read of 71 percent. She says “they’d
have to drop to 30 percent for a major bear market to begin again.” Several pieces of bad news would
have to converge for that to happen: industrial production, which is growing at 6 percent now would
have to drop below zero and we’d have to have the Fed would need to tighten the Fed Funds rate by
over 200 basis points. That would bring interest rates close to the S&P 500 dividend yield, creating a
situation in which the stock market would be competitive to cash positions. But those are not likely to
happen. Historically, she notes when we’ve had a slow recovery – as this one has been -- they’ve lasted
for a number of years. Her conclusion is that the cyclical bull market is likely to last for a long time.
As for a near term correction, she says in general when sentiment is as bad as it is right now it points to
a coming 4-7 percent correction. “I would expect any correction,” Garzarelli told listeners to Radio Wall
St.: The Money Man Report, “to not be on the order of the 10-15 percent correction that followed QE
[Qualitative Easing]1 stopping in the spring but a lot less.” Generally, she added, these corrections last 3
to 4 weeks.
Garzarelli is expecting around 3 percent growth in the overall economy for 2011. The sectors that she
sees with the best potential to keep growing through 2013 are the consumer durables, the industrial
and transportation equipment and software area, and net exports. These sectors, she says, should start
to outperform real GDP and therefore earnings will outperform the S&P. She also sees residential
construction, fueled by favorable mortgage rates and increasing consumer confidence, as well as

3. consumer wealth, which has increased 20 percent in the last year, along with the inexorable growth in
population, all resulting in increased demand for new homes in the next three to five years.
What she would veer away from are the counter-cyclical, such as utilities, consumer staples and health
care, three areas she sees as not growing as fast over the coming year or so, although they are going up
right now while the cyclical sectors are going through the correction right now.
So that is what three of the smartest people you can listen to are seeing coming down the road. You can
catch a ride with them or just go on traveling in the same direction as everybody else. But then, by the
time that everybody catches up, the leaders have already moved on. That’s why some people drive
Fords on the road of life while others sit in the back of stretch Lincolns.